UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F
(Mark One)
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
For the transition period from ______________ to _______________
OR
o
SHELL COMPANY PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
Date of event requiring this shell company report_________________
 
Commission File Number 001-37652
____________________________________________________________
MIDATECH PHARMA PLC
(Exact name of registrant as specified in its charter)
____________________________________________________________
England and Wales
(Jurisdiction of incorporation or organization)

65 Innovation Drive
Milton Park
Abingdon, Oxfordshire, OX14 4RQ, United Kingdom
(Address of principal executive offices)

James N. Phillips, Chief Executive Officer
65 Innovation Drive
Milton Park
Abingdon, Oxfordshire, OX14 4RQ, United Kingdom
Tel: +44 (0)1235 841 575
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act.
 
Title of each class
 
Name of each exchange on which registered
Ordinary Shares, nominal value 005p each
   
     
American Depositary Shares, each representing two
ordinary shares
 
NASDAQ Capital Market
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
 
None
(Title of Class)
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
 
None
(Title of Class)
____________________________________________________________
 
 
 
 
 
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2015 was: 33,467,504   Ordinary Shares
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  o   NO  x
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. YES  o   NO   x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  x   NO  o
 
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  o   NO  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of  “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):
 
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  x
 
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP  o
International Financial Reporting Standards as issued by the
International Accounting Standards Board  x
Other  o
 

 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  Item 17   o   Item 18   x
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange  Act). YES  o   NO  x
 
 
-2-
 
 
TABLE OF CONTENTS

PART I
   
6
6
6
42
83
83
97
111
114
117
119
123
124
   
PART II
   
128
128
128
ITEM 16.  [RESERVED]
 
129
129
129
130
130
130
130
131
   
PART III
   
132
132
132
 

 
i

GENERAL INFORMATION

Midatech Pharma PLC is a public limited company organized under the laws of England and Wales under registered number 09216368. In this annual report, references to “we,” “us,” “our,” “the Group, “Company,” “company” or “Midatech” means Midatech Pharma PLC and its consolidated subsidiaries.

On December 4, 2015, Midatech acquired DARA BioSciences, Inc. (“DARA”) through a merger transaction (the “Merger”) in which the stockholders of DARA Biosciences, Inc. received (i) American depositary shares (“Depositary Shares”) representing the ordinary shares of Midatech, nominal value 0.005p per share (the “Ordinary Shares”) and (ii) contingent value rights which represents the right to receive contingent payments if specified milestones are achieved within agreed time periods. Immediately following the closing of the Merger, DARA became a wholly owned subsidiary of Midatech and changed its named to “Midatech Pharma US Inc.” (“Midatech US”). Where this annual report (i) provides information for dates prior to December 4, 2015, such information does not include the historical information of DARA, (ii) refers to DARA, it is referencing the DARA entity prior to December 4, 2015 and (iii) references Midatech US, it is referencing the former DARA entity from December 4, 2015 on.

Our principal executive offices are located at 65 Innovation Drive, Milton Park, Abingdon, Oxfordshire OX14 4RQ, United Kingdom. The telephone number at our principal executive office is +44 1235 841 575.
 
We maintain an Internet website at www.midatechpharma.com. None of the information contained on our website, or on any other website linked to our website, will be incorporated in this annual report by reference or otherwise be deemed to be a part of this annual report.

The trademarks, trade names and service marks appearing in this Annual Report on Form 20-F are the property of their respective owners.

PRESENTATION OF FINANCIAL AND OTHER DATA

The consolidated financial statement data as of December 31, 2015, 2014 and 2013 and for the years ended December 31, 2015, 2014 and 2013 have been derived from our consolidated financial statements, as presented at the end of this annual report, which have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Midatech prepares its consolidated financial statements in British pounds sterling.  In this annual report, references to “GBP,” “£,” “pence” or “p” are each to British pounds sterling (or units thereof), and references to “$,” “USD,” “US$” and “U.S. dollar” are each to the United States dollar. Except as otherwise stated, all monetary amounts in this annual report are presented in Great Britain pounds sterling. Solely for the convenience of the reader, unless otherwise indicated, all British pounds sterling amounts as of and for the year ended December 31, 2015 have been translated into U.S. dollars at the rate at December 31, 2015, of £1.00 to $1.4746, based on noon buying rates published by the Federal Reserve Bank of New York for the British pound sterling on such date. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate as of that or any other date.

References to a particular “fiscal” year are to our fiscal year ended December 31 of such year. References to years not specified as being fiscal years are to calendar years.

As reference, the following provides a description of the different phases of clinical trials, as used in this annual report:

 
·
Phase I clinical trials involve the assessment of the safety, pharmacodynamics and pharmacokinetics of a drug candidate in a small group of human subject (typically 20 to 100 patients).

 
·
Phase la is a Phase I single ascending dose study, where a small number of participants receive a single dose, before ascending to the next dose once safety is determined.
 
 
2
 
 
·
Phase lb is a Phase I multiple ascending dose study, where a number of participants receive multiple low doses before escalating the dose for further groups to a predetermined level.

 
·
Phase ll clinical trials involve the assessment in patients of a drug to determine its safety, dose range and preliminary efficacy (typically 100 to 300 patients).

 
·
Phase lla is a form of Phase II study designed specifically to assess dosing requirements.

 
·
Phase llb is a form of Phase II study specifically designed to study efficacy.

 
·
Phase lll is a clinical trial involving the assessment of the efficacy and safety of a drug, usually in comparison with a marketed product or a placebo, in the patient population for which it is intended (typically 1,000 to 3,000 patients).

 
3
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains certain forward-looking information about Midatech that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this annual report or may be incorporated into this annual report by reference to other documents. Representatives of Midatech may also make forward-looking statements. Forward-looking statements are statements that are not historical facts. Words such as “expect,” “believe,” “will,” “may,” “anticipate,” “plan,” “estimate,” “intend,” “should,” “can,” “likely,” “could” and similar expressions are intended to identify forward-looking statements.  Forward-looking statements appear in a number of places throughout this annual report and include statements regarding our intentions, beliefs, assumptions, projections, outlook, analyses or current expectations concerning, among other things, our intellectual property position, success integrating Midatech US and other acquisitions, research and development projects, results of operations, cash needs, capital expenditures, financial condition, liquidity, prospects, growth and strategies, regulatory approvals and clearances, the markets and industry in which we operate and the trends and competition that may affect the markets, industry or us.
 
These forward-looking statements are based on currently available competitive, financial and economic data together with management’s views and assumptions regarding future events and business performance as of the time the statements are made and are subject to risks and uncertainties. Midatech wishes to caution you that there are some known and unknown factors that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements, including but not limited to risks related to:
 
 
·
our estimates regarding losses, expenses, future revenues, capital requirements and needs for additional financing;
 
 
·
the successful commercialization and manufacturing of our licensed products, products originally licensed to DARA, and any future product we may commercialize;
 
 
·
the success and timing of our preclinical studies and clinical trials;
 
 
·
the difficulties in obtaining and maintaining regulatory approval of our product candidates, and the labeling under any approval we may obtain;
 
 
·
the success and timing of the potential commercial development of our product candidates and any product candidates we may acquire in the future;
 
 
·
our plans and ability to develop and commercialize our product candidates and any product candidates we acquire in the future;
 
 
·
the rate and degree of market acceptance of any of our product candidates;
 
 
·
the successful development of our commercialization capabilities, including sales and marketing capabilities;
 
 
·
obtaining and maintaining intellectual property protection for our product candidates and our proprietary technology;
 
 
·
the success of competing therapies and products that are or become available;
 
 
·
the success of any future acquisitions;
 
 
·
the potential we will incur financial obligations to former DARA stockholders;
 
 
·
the difficulties of integrating DARA’s former business into our own;
 
 
·
the outcome of the Company’s remediation plan and approach to the material weakness in internal control over financial reporting;
 
 
4
 
 
·
the impact of government laws and regulations;
 
 
·
regulatory and political developments in the United Kingdom, the United States and other foreign countries;
 
 
·
the difficulties doing business internationally;
 
 
·
the ownership of our Ordinary Shares and Depositary Shares;
 
 
·
our failure to recruit or retain key scientific or management personnel or to retain our executive officers;
 
 
·
the impact and costs and expenses of any litigation we may be subject to now or in the future; and
 
 
·
the performance of third parties, including joint venture partners, our sales force, our collaborators, third-party suppliers and parties to our licensing agreements.
 
Any forward-looking statements that we make in this annual report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this annual report. See “ Item 10. Additional Information—H. Documents on Display .”
 
You should also read carefully the factors described in “ Item 3. Key Information—D. Risk Factors ” and elsewhere in this annual report to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this annual report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all.
 
 
5
 
PART I

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.

Not Applicable.

OFFER STATISTICS AND EXPECTED TIMETABLE.

Not Applicable.

KEY INFORMATION.

A. 
Selected Financial Data.

Midatech prepares its consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The following table sets forth certain of Midatech’s consolidated financial data. The selected historical consolidated financial data as of December 31, 2015, 2014 and 2013 and for the years ended December 31, 2015, 2014 and 2013 is derived from Midatech’s audited consolidated financial statements, which are included elsewhere in this annual report.

Acquisitions of Q Chip Limited and DARA BioSciences, Inc.

On December 8, 2014, Midatech acquired Q Chip Limited, a company incorporated under the laws of England and Wales, subsequently renamed Midatech Pharma (Wales) Limited (“Midatech Wales”). Midatech’s financial and operating data for fiscal 2014 was not adjusted to reflect the full year effect of Midatech’s acquisition of Midatech Wales, whereas statement of financial position data and subsequent periods include contributions from Midatech Wales.

On December 4, 2015, Midatech acquired DARA. Midatech’s financial and operating data for fiscal 2015 and 2014 was not adjusted to reflect the full year effect of Midatech’s acquisition of DARA, whereas statement of financial position data and subsequent periods include contributions from DARA.

Thus Midatech’s financial and operating data are not fully comparable in this annual report.

The selected historical financial data presented below should be read in conjunction with “ Item 5. Operating and Financial Review and Prospects ” and Midatech’s financial statements and the related notes thereto, which are included elsewhere in this annual report. The selected historical financial information in this section is not intended to replace Midatech’s financial statements and the related notes thereto.

 
(£’s in thousands, except share and per share data; all from continuing operations)
 
As of and for the
Year Ended
December 31,
 
   
2015
   
2014
   
2013
 
Consolidated Statement of Comprehensive Income Data:
                 
Total revenue
    1,375       157       147  
Loss from operations
    (12,918 )     (9,947 )     (4,499 )
Loss before tax
    (11,232 )     (10,100 )     (4,883 )
Loss after tax attributable to the owners of the parent
    (10,099 )     (9,082 )     (4,084 )
Total other comprehensive income, net of tax
    399       (151 )     5  
Total comprehensive loss attributable to the owners of the parent
    (9,700 )     (9,233 )     (4,079 )
Loss Per Share Data:
                       
Basic and diluted loss per ordinary share—pence
    (36p )     (101p )     (71p )
Cash dividends declared per ordinary share
    —       —       —  
Weighted average number of ordinary shares used
    28,229,814       9,026,347       5,715,576  
                         
Consolidated Statement of Financial Position Data:
                       
Non-Current assets
    43,710       15,035       1,079  
Current assets
    20,331       31,628       4,095  
Cash and cash equivalents
    16,175       30,325       2,387  
Total assets
    64,041       46,663       5,174  
Non-Current liabilities
    8,055       1,842       2,119  
Borrowings
    1,508       1,488       2,119  
Current liabilities
    9,099       2,832       2,295  
Total liabilities
    17,154       4,674       4,414  
Total equity
    46,887       41,989       760  
Total equity and liabilities
    64,041       46,663       5,174  

Exchange Rates

Midatech’s financial reporting currency is the British pound sterling. Fluctuations in the exchange rate between the British pound sterling and the U.S. dollar will affect the U.S. dollar amounts received by owners of Depositary Shares on conversion of dividends, if any, paid in British pound sterling on the Ordinary Shares and will affect the U.S. dollar price of the Depositary Shares on the NASDAQ Capital Market.
 
The following table shows, for the periods indicated, information concerning the exchange rate between the British pound sterling and the U.S. dollar. This information is provided solely for your information, and Midatech does not represent that the British pound sterling could be converted into U.S. dollars at these rates or at any other rate. These rates may differ from the actual rates used in the preparation of the consolidated financial statements included in this annual report and other financial data appearing in this annual report.
 
 
The data provided in the following table is expressed in U.S. dollars per British pound sterling and is based on noon buying rates published by the Federal Reserve Bank of New York for the British pound sterling. On April 1, 2016, the noon buying rate was £1.00 = $1.4204.

   
High ($)
   
Low ($)
 
Recent Monthly Data
     
April 2016 (through April 1, 2016)
  1.4204     1.4204  
March 2016
  1.4514     1.3948  
February 2016
  1.4580     1.3926  
January 2016
  1.4686     1.4167  
December 2015
  1.5213     1.4746  
November 2015
  1.5428     1.5040  
October 2015
  1.5475     1.5162  

   
Average
Rate ($) (1)
 
Annual Data (12-month period ended December 31)
     
2015
    1.5250  
2014
    1.6461  
2013
    1.5667  
2012
    1.5924  
2011
    1.6105  
_____________
 
(1)
The average rates were calculated by taking the simple average of the daily noon buying rates, as published by the Federal Reserve Bank of New York, on the last day of each month during the period.

B. 
Capitalization and Indebtedness

Not Applicable

C. 
Reasons for the Offer and Use of Proceeds

Not Applicable

D. 
Risk Factors

Our business has significant risks. In addition to the other information included in this annual report, including the matters addressed in the section of the annual report entitled “Cautionary Note Regarding Forward-Looking Statements” and in our financial statements and the related notes, y ou should consider carefully the risks described below.   The risks and uncertainties described below are not the only risks and uncertainties we may face. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial could also negatively affect our business, financial condition, results of operations, prospects, profits and stock prices. If any of the risks described below actually occur, our business, financial condition, results of operations, prospects, profits and stock prices could be materially adversely affected.
 
 
Risks Related to Midatech’s Financial Operations and Capital Needs

Midatech (including its predecessor entity, Midatech Limited) has incurred significant losses since its inception and anticipates that it will continue to incur losses in the future.

Midatech is an early-stage biopharmaceutical company. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. Prior to the acquisition of DARA in December 2015, Midatech had not generated any revenue from product sales, and it continues to incur significant development and other expenses related to its ongoing operations. As a result, Midatech is not profitable and has incurred substantial losses since its inception. For the year ended December 31, 2015, Midatech had a net loss of £10.1 million, and an accumulated deficit of £39.2 million.
 
Midatech expects to continue to incur losses for the foreseeable future, and expects these losses to increase as it continues its development of, and seeks regulatory approvals for, its product candidates, and begins to commercialize any approved products. Midatech may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect its business. The size of Midatech’s future net losses will depend, in part, on the rate of future growth of its expenses and its ability to generate revenues, particularly from Midatech US operations. If any of Midatech’s or its subsidiaries products fail to develop a market, or if any of their  product candidates fail in clinical trials or do not gain regulatory approval, or if approved, fail to achieve market acceptance, Midatech may never become profitable. Even if Midatech achieves profitability in the future, it may not be able to sustain profitability in subsequent periods. Midatech’s prior losses and expected future losses have had and will continue to have an adverse effect on its stockholders’ equity and working capital.
 
A substantial part of Midatech’s operations are in early-stage development with no source of revenue and there is no assurance that Midatech will successfully develop and commercialize its product candidates or ever become profitable.
 
Midatech is at a relatively early stage of its commercial development. To date, Midatech has not generated any revenue from its product candidates. Midatech’s ability to generate revenue and become and remain profitable depends, in part, on its ability to successfully commercialize products, including any of its product candidates, or other product candidates it may in-license or acquire. Even if Midatech were to successfully achieve regulatory approval of its product candidates, Midatech does not know when any of the product candidates will generate revenue, if at all. Midatech’s ability to generate revenue from its current or future product candidates also depends on a number of additional factors, including its ability to:
 
 
·
successfully complete development activities, including preclinical development and clinical trials for its product candidates;
 
 
·
complete and submit new drug applications to the European Medicines Agency (the “EMA”), the Medicines and Healthcare Products Regulatory Agency in the United Kingdom (the “MHRA”), the United States Food and Drug Administration (the “FDA”), and any other foreign regulatory authorities, and obtain regulatory approval for testing and for products for which there is a commercial market;
 
 
·
set a commercially viable price for its products;
 
 
·
obtain commercial qualities of its products at acceptable cost levels;
 
 
·
develop a commercial organization capable of sales, marketing and distribution in its markets; and
 
 
·
obtain adequate reimbursement from third-parties, including government, departments and healthcare payors.
 
 
In addition, because of the numerous risks and uncertainties associated with product development, including that Midatech’s product candidates may not advance through development or achieve the endpoints of applicable clinical trials, Midatech is unable to predict the timing or amount of increased expenses, or when or if it will be able to achieve or maintain profitability. Even if Midatech is able to complete the process described above, it anticipates incurring significant costs associated with commercializing these products.

Even if Midatech is able to generate revenues from the sale of its products, it may not become profitable and may need to obtain additional funding to continue operations. If Midatech fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and may be forced to reduce its operations.

Potential investors should be aware of the risks associated with an investment in companies with limited trading histories. There can be no assurance that Midatech will operate profitably, produce a reasonable return, if any, on investment, or remain solvent. If Midatech’s strategy proves unsuccessful, stockholders could lose all or part of their investment.

If Midatech requires or seeks to raise additional capital to fund its operations and it fails to obtain necessary financing, Midatech may be unable to complete the development and commercialization of its product candidates.

Midatech expects to continue to spend substantial amounts of its cash resources going forward in order to advance the clinical development of its product candidates and launch and commercialize any product candidates for which it receives regulatory approval. Midatech believes that its existing cash and cash equivalents and interest thereon will be sufficient to fund its projected operating requirements for at least the next 12 months. However, Midatech may require, or may determine to seek, additional capital for the further development and commercialization of its product candidates from time to time.

Until such time as Midatech can generate a sufficient amount of revenue from its products, if ever, it expects that it may finance future cash needs through, among things, public or private equity or debt offerings. Such offerings may take place in the United Kingdom, the United States or other foreign countries. Additional capital may not be available on reasonable terms, if at all. If Midatech is unable to raise additional capital in sufficient amounts or on terms acceptable to it, Midatech may have to significantly delay, scale back or discontinue the development or commercialization of one or more of its product candidates. If Midatech raises additional funds through the issuance of additional debt or equity securities, such issuance could result in dilution to Midatech’s existing stockholders and/or increased fixed payment obligations. Furthermore, these securities may have rights senior to those of Midatech’s Ordinary Shares and could contain covenants that would restrict its operations and potentially impair its competitiveness, such as limitations on Midatech’s ability to incur additional debt, limitations on Midatech’s ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact Midatech’s ability to conduct its business. Any of these events could significantly harm Midatech’s business, financial condition and prospects.

Midatech’s forecast of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “ Item 3.D   Risk Factors ” section. Midatech has based this estimate on assumptions that may prove to be wrong, and it could utilize its available capital resources sooner than it currently expects. Midatech’s future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

 
·
the success of products acquired in connection with the acquisition of DARA and the commercialization of other assets;

 
·
the initiation, progress, timing, costs and results of clinical trials for its product candidates and future product candidates it may in-license or acquire;

 
·
the attainment of milestones and the need to make any royalty payments on any of its product candidates or any other future product candidates;
 
 
 
·
the number and characteristics of product candidates it in-license or acquires and develop;
 
 
·
the outcome, timing and cost of regulatory approvals by the EMA, the MHRA, the FDA and any other comparable foreign regulatory authorities, including the potential for such regulatory authorities to require that Midatech perform more studies than those it currently expects;
 
 
·
the cost of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights;
 
 
·
the effect of competing technological and market developments; and
 
 
·
the cost of establishing sales, marketing and distribution capabilities for any product candidates for which it may receive regulatory approval.
 
If a lack of available capital means that Midatech is unable to expand its operations or otherwise capitalize on its business opportunities, its business, financial condition and results of operations could be materially adversely affected.
 
Midatech’s future financial obligations to former stockholders of DARA may harm its financial condition and results of operations.
 
Midatech has two future liabilities in the form of contingent value right (“CVR”) payments to the former stockholders of DARA upon the achievement of certain commercial targets. The CVRs represent the right to receive a cash payment from Midatech of up to $5.7 million in the aggregate. A CVR payment in the following amounts may be made in 2017 if the following milestones are achieved:
 
 
·
$0.07 per CVR if gross sales of Oravig and Gelclair, two drugs acquired in the acquisition of DARA, equal or exceed $15.0 million but are less than $16.5 million, in the aggregate, for the fiscal year ending December 31, 2016;
 
 
·
$0.09 per CVR if gross sales of Oravig and Gelclair equal or exceed $16.5 million but are less than $18.0 million, in the aggregate, for the fiscal year ending December 31, 2016; or
 
 
·
$0.11 per CVR if gross sales of Oravig and Gelclair equal or exceed $18.0 million, in the aggregate, for the fiscal year ending December 31, 2016.
 
The second CVR payment in the following amounts may be made in 2018 if the following milestones are achieved:
 
 
·
$0.11 per CVR if gross sales of Oravig and Gelclair, two drugs acquired in the acquisition of DARA, equal or exceed $15.0 million but are less than $16.5 million, in the aggregate, for the fiscal year ending December 31, 2017;
 
 
·
$0.13 per CVR if gross sales of Oravig and Gelclair equal or exceed $16.5 million but are less than $18.0 million, in the aggregate, for the fiscal year ending December 31, 2017; or
 
 
·
$0.16 per CVR if gross sales of Oravig and Gelclair equal or exceed $18.0 million, in the aggregate, for the fiscal year ending December 31, 2017.
 
In addition, in connection with the Merger, Midatech set aside an aggregate of $300,000 (“Bonus Pool”), to be offered to employees of DARA who became employees of Midatech US following the closing of the Merger. Any payments made from the Bonus Pool will be made at the same time, upon the same circumstances, and in a proportional amount, that any payments are made to CVR holders.
 
 
Midatech cannot predict if these payments could have a materially adversely effect on its business at the time of payment.

A vote by the United Kingdom electorate in favor of the United Kingdom’s exit from the European Union in the forthcoming in-or-out referendum could adversely impact Midatech’s business, results of operations and financial condition.
 
On June 23, 2016, the United Kingdom government will hold an in-or-out referendum on the United Kingdom’s membership of the European Union.  If the result of the referendum leads to the United Kingdom exiting the European Union (commonly referred to as “Brexit”) it is likely that a process of negotiation would commence between the United Kingdom and European Union member states to determine the future terms of the United Kingdom’s relationship with the European Union. This could lead to a period of considerable uncertainty particularly in relation to United Kingdom financial and banking markets.

In March 2016, the Governor of the Bank of England, Dr. Mark Carney, told a committee of the United Kingdom’s House of Commons that “the [Brexit] issue is the biggest domestic risk to financial stability, in part because of the issues around uncertainty, but also because it has the potential, depending on how it is prosecuted and how these issues can be addressed, to amplify risks around the current account, as has been discussed, potential risks around housing, potential risks around market functioning, which we are trying to mitigate, and associated risks with respect to the Euro area, which would have a feedback.”

In the event of a Brexit, Midatech may face new regulatory costs and challenges that may have a material adverse effect on it and its operations. A significant portion of Midatech’s manufacturing infrastructure is located in Spain, which is a member of the European Union.  If the United Kingdom ceases to be a member of the European Union, Midatech’s ability to integrate its United Kingdom and Spanish operations could be adversely affected.  For example, depending on the terms of the Brexit, Midatech could become subject to export tariffs and regulatory restrictions that could increase the costs and time related to doing business in Spain.

Additionally, a Brexit could allow the United Kingdom to significantly alter its regulations affecting the pharmaceutical industry, which may result in significant costs for Midatech.  It may also be time-consuming and expensive for Midatech to alter its internal operations in order to comply with new regulations.  Altered regulations could also add time and expense to the process by which Midatech’s product candidates receive regulatory approval in the United Kingdom and the European Union.

Depending on the terms of Brexit (if it were to occur), the United Kingdom could also lose access to the single European Union market and to the global trade deals negotiated by the European Union on behalf of its members. Such a decline in trade could affect the attractiveness of the United Kingdom as a global investment center and, as a result, could have a detrimental impact on growth. Although Midatech has international operations and customer base, it could be adversely affected by reduced growth and/or volatility in the United Kingdom economy. Any of the foregoing factors could have a material adverse effect on the business, results of operations or financial condition of Midatech.

Risks Related to Midatech’s Business and Industry

Midatech’s future success is dependent on product development, regulatory approval and commercialization of its products, product candidates and any product candidates it may acquire in the future.

While Midatech has recently acquired products that have received regulatory approval and has begun commercialization, Midatech must continue to conduct clinical trials and research and development for its additional product candidates, and there can be no assurance that any of Midatech’s targeted developments will be successful. Midatech must develop functional products that address specific market needs. It must therefore engage in new development activities, which may not produce innovative, commercially viable results in a timely manner or at all. In addition, Midatech may not be able to develop new technologies or identify specific market needs that are addressable by its technologies, or technologies available to it. Midatech may encounter delays and incur additional development and production costs and expenses, over and above those expected, in order to develop technologies and products suitable for licensing. If Midatech’s development program is curtailed due to any of the above issues, this may have an material adverse effect on Midatech’s business and financial conditions.
 
 
Midatech’s business is dependent on its ability to complete the development of, obtain regulatory approval for and/or commercialize its products and product candidates in a timely manner. Midatech cannot commercialize a product without first obtaining regulatory approval from the appropriate regulatory authorities in a country. Before obtaining regulatory approvals for the commercial sale of any product candidate for a target indication, Midatech must demonstrate with substantial evidence gathered in preclinical and well-controlled clinical studies that the product candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls are adequate. The process to develop, obtain regulatory approval for and commercialize product candidates is long, complex and costly. Even if a product candidate were to successfully obtain approval from the EMA, the MHRA, the FDA and/or comparable foreign regulatory authorities, any approval might contain significant limitations related to use restrictions for certain age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If Midatech is unable to obtain regulatory approval for its product candidates in one or more jurisdictions, or any approval contains significant limitations, it may not be able to obtain sufficient funding or generate sufficient revenue to continue the development of any other product candidate that it is currently developing or that it may in-license or acquire in the future. Furthermore, even if Midatech obtains approval for a product candidate from the regulatory authorities, it is likely that it will need to expand its commercial operations, establish commercially viable pricing and obtain approval for adequate reimbursement from third parties and government departments and healthcare payors for such products. If Midatech is unable to successfully commercialize its current product candidates, it may not be able to earn sufficient revenues to continue its business

Clinical drug development involves a risky, 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. Failure can occur at any time during the clinical trial process. The results of any preclinical studies and early clinical trials of Midatech’s product candidates may not be predictive of the results of later-stage clinical trials, even after seeing promising results in earlier clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits 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 trials. Midatech’s future clinical trial results may not be successful.

Midatech has clinical trials ongoing for its transbuccal insulin program, which entered Phase IIa clinical trials in July 2015.  Midatech may experience delays in its ongoing or future clinical trials and it does not know whether planned clinical trials will begin or enroll subjects on time, need to be redesigned or be completed on schedule, if at all. Clinical trials may be delayed, suspended or prematurely terminated for a variety of reasons, such as:

 
·
delay or failure in reaching agreement with the applicable regulatory authorities on a trial design that Midatech is able to execute;
 
 
·
delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical study;
 
 
·
delay or failure in reaching agreement on acceptable terms with prospective contract research organizations (“CROs”), and clinical trial providers and sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
 
 
·
delay or failure in obtaining institutional review board approval (“IRB”) or the approval of other reviewing entities, including regulatory authorities, to conduct a clinical trial at each site;
 
 
 
·
withdrawal of clinical trial sites from Midatech’s clinical trials as a result of changing standards of care or the ineligibility of a site to participate in Midatech’s clinical trials;
 
 
·
delay or failure in recruiting and enrolling suitable subjects to participate in a trial;
 
 
·
delay or failure in having subjects complete a trial or return for post-treatment follow-up;
 
 
·
clinical sites and investigators deviating from trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial;
 
 
·
inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication;
 
 
·
failure of Midatech’s third party clinical trial managers to satisfy their contractual duties or meet expected deadlines;
 
 
·
failure to receive the recommendation of the United Kingdom National Institute for Health and Care Excellence (“NICE”);
 
 
·
delay or failure in adding new clinical trial sites;
 
 
·
ambiguous or negative interim results, or results that are inconsistent with earlier results;
 
 
·
feedback from the EMA, the MHRA, the FDA, the IRB, data safety monitoring boards, or other regulatory authority, or results from earlier stage or concurrent preclinical and clinical studies, which might require modification to the protocol;
 
 
·
decisions by the EMA, the MHRA, the FDA, the IRB, other regulatory authorities, or Midatech, or recommendation by a data safety monitoring board or other regulatory authority, to suspend or terminate clinical trials at any time for safety issues or for any other reason;
 
 
·
unacceptable risk-benefit profile or unforeseen safety issues or adverse side effects;
 
 
·
failure to demonstrate a benefit from using a drug;
 
 
·
manufacturing, including manufacturing or obtaining from third parties sufficient quantities of a product candidate for use in clinical trials; or
 
 
·
changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
 
If Midatech experiences delays in the completion of, or termination of, any ongoing or future clinical trial of Midatech’s product candidates, the commercial prospects of its product candidates will be harmed, and its ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing Midatech’s clinical trials may increase Midatech’s costs, slow down its product candidate development and approval process and jeopardize its ability to commence product sales and generate revenues. Any of these occurrences may harm Midatech’s business, financial condition and prospects significantly. 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 Midatech’s product candidates.

The regulatory approval processes in the United States and Europe are lengthy, time consuming and inherently unpredictable, and if Midatech is ultimately unable to obtain regulatory approval for its product candidates, its business may be substantially harmed.
 
 
The time required to obtain approval by the EMA, the MHRA, the FDA and other comparable foreign regulatory authorities is unpredictable, but typically takes many years following the commencement of preclinical studies and clinical trials and depends upon numerous factors, including the substantial discretion of the 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. It is possible that none of its existing product candidates or any product candidates it may in-license or acquire and seek to develop in the future will ever obtain regulatory approval.

Midatech’s product candidates could fail to receive regulatory approval from the EMA, the MHRA, the FDA and other comparable foreign regulatory authorities for many reasons, including:
 
 
·
disagreement with the design or implementation of Midatech’s clinical trials;
 
 
·
failure to demonstrate that a product candidate is safe and effective for its proposed indication;
 
 
·
failure of clinical trials to meet the level of statistical significance required for approval;
 
 
·
failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
 
 
·
disagreement with Midatech’s interpretation of data from preclinical studies or clinical trials;
 
 
·
the insufficiency of data collected from clinical trials of Midatech’s product candidates to support the submission and filing of a new drug application or other submission or to obtain regulatory approval;
 
 
·
disapproval of the manufacturing processes or facilities of third party manufacturers, if any, with whom Midatech contracts for clinical and commercial supplies; or
 
 
·
changes in the approval policies or regulations that render Midatech’s preclinical and clinical data insufficient for approval.
 
In addition, the EMA, the MHRA, the FDA and other comparable foreign regulatory authorities may require more information, including additional preclinical or clinical data to support approval, which may delay or prevent approval and Midatech’s commercialization plans, or Midatech may decide to abandon the development program. If Midatech were to obtain approval, regulatory authorities may approve any of its product candidates for fewer or more limited indications than it requests, 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. In addition, if Midatech’s product candidate produces undesirable side effects or safety issues, the regulatory authorities (the FDA, MHRA, EMA or a comparable foreign regulatory authority) may require the establishment of Risk Mitigation Strategy, which may, for instance, restrict distribution of Midatech’s products and impose burdensome implementation requirements on it. Any of the foregoing scenarios could materially harm the commercial prospects for Midatech’s product candidates.
 
Midatech’s product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval and limit the commercial profile of an approved label, and such side effects or other properties could result in significant negative consequences following any marketing approval of any of Midatech’s products or product candidates.

Undesirable side effects caused by any of Midatech’s product candidates could cause it or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the EMA, the MHRA, the FDA or other comparable foreign regulatory authority. Results of Midatech’s trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, Midatech’s trials could be suspended or terminated and the regulatory authorities could order it to cease further development of or deny approval of its product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Any of these occurrences may harm Midatech’s business, financial condition and prospects significantly.
 
 
Additionally, if undesirable side effects of Midatech’s products are identified following marketing approval, a number of potentially significant negative consequences could result, including:

 
·
Midatech may suspend marketing of such product;
 
 
·
regulatory authorities may withdraw approvals of such product or may require additional warnings on the label;
 
 
·
Midatech may be required to develop a Risk Mitigation Strategy for each product or, if a strategy is already in place, to incorporate additional requirements;
 
 
·
Midatech may be required to conduct post-market studies; and
 
 
·
Midatech could be sued and held liable for harm caused to subjects or patients.
 
Consequently, Midatech’s reputation may suffer.

Any of these events could prevent Midatech from achieving or maintaining market acceptance of the particular product or product candidate, if approved, and could significantly harm its business, results of operations and prospects.

Midatech’s products may face future development, manufacturing and regulatory difficulties.

Midatech’s products, and any of its product candidates once they receive regulatory approval, are subject to the ongoing requirements of the EMA, the MHPA, the FDA and other regulatory agencies governing the manufacturer, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. The safety profile of any product is closely monitored by the EMA, the MHRA, the FDA and other regulatory authorities after approval. If the EMA, the MHRA, the FDA or other regulatory authorities become aware of new safety information after approval of any of Midatech’s products or product candidates, regulatory authorities may require labeling changes or establishment of a risk mitigation strategy or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.

In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the EMA, the MHRA, the FDA and other governmental regulatory authorities for compliance with current good manufacturing practices (“cGMP”) regulations. If Midatech or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or Midatech, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If Midatech, its products, product candidates or the manufacturing facilities for its products or product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

 
·
issue warning letter or untitled letters;
 
 
·
mandate modifications to, or the withdrawal of, marketing and promotional materials or require Midatech to provide corrective information to healthcare practitioners;
 
 
·
require Midatech to enter into a consent decree, which can include the imposition of various fines against Midatech, reimbursements of inspection costs, required due dates for specific actions and penalties for noncompliance;
 
 
 
·
seek an injunction or impose civil or criminal penalties or monetary fines;
 
 
·
suspend or withdraw its regulatory approval;
 
 
·
suspend any ongoing clinical studies;
 
 
·
refuse to approve pending applications or supplements to applications filed;
 
 
·
suspend or impose restrictions on operations, the products, manufacturing or Midatech itself;
 
 
·
require Midatech to change its product labeling; or
 
 
·
seize or detain products, refuse to permit the import or export of products or require Midatech to initiate a product recall.
 
The occurrence of any of these events may inhibit Midatech’s ability to commercialize its products and generate revenue.
 
Any advertising and promotion of any product or any future product Midatech may commercialize will be heavily scrutinized.
 
Advertising and promotion of any of Midatech’s products or any future product Midatech may commercialize will be heavily scrutinized by various regulatory authorities in the jurisdictions in which the product is promoted. Violations, including promotion of Midatech’s products for unapproved (or off-label) uses, are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA and other governmental agencies.
 
In the United States, engaging in impermissible promotion of Midatech’s products for off-label uses can subject Midatech to false claims litigation under federal and state statutes, which, if successful, could result in civil and criminal penalties and fines and agreements that materially restrict the manner in which a company promotes or distributes drug products. These false claims statutes include the federal False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company, on behalf of the federal government, alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government prevails in the lawsuit, the individual will share in any fines or settlement funds. Since 2004, these False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements based on certain sales practices promoting off-label drug uses. For instance, in 2009, Pfizer, Inc. paid $2.3 billion to settle civil and criminal allegations for illegally marketing four products and in 2012 GlaxoSmithKline paid $3 billion to resolve U.S. government investigations focused in large part on promotional practices, the largest False Claims Act settlement to date. This growth in litigation has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and be excluded from the Medicare, Medicaid, and other federal and state healthcare programs. If Midatech does not lawfully promote its approved products, it may become subject to such litigation and, if it is not successful in defending against such actions, those actions may have a material adverse effect on its business, financial condition and results of operations.

Midatech’s commercialization strategy includes the possible revenue generation from product royalty revenue, which may expose Midatech to risks.

Midatech’s commercialization strategy includes possible revenue generation from product royalty deals. The right to receive possible product royalty revenues in the future may be challenged by the customer or licensee or there may be legal restrictions on the payment of royalties on product sales. Remittance of royalty revenues to Midatech may be restricted from certain territories or subject to withholding taxes that Midatech may not be able to recover or offset.
 
 
The commercial success of Midatech’s products is not guaranteed.

There can be no assurance that any of Midatech’s products or its product candidates currently in development will be successfully developed into any commercially viable product or products and/or be manufactured in commercial quantities at an acceptable cost or be marketed successfully and profitably. If Midatech, or its partners, encounters delays at any stage, and fails successfully to address such delays, it may have a material adverse effect on Midatech’s business, financial condition and prospects. In addition, Midatech’s success will depend on the market’s acceptance of its products and there can be no guarantee that this acceptance will be forthcoming or that Midatech’s technologies will succeed as an alternative to competing products. The development of a market for Midatech’s products is affected by many factors, some of which are beyond Midatech’s control, including the emergence of newer, more effective technologies and products, and the cost of Midatech’s products themselves, including the availability of products for which healthcare reimbursement is available. Notwithstanding the technical merits of a product developed or acquired by Midatech, there can be no guarantee that the customer base of Midatech’s distributors for the products will purchase or continue to purchase the particular product. Demand for Midatech’s products may also decrease if competitor products are introduced with perceived advantages over Midatech’s products or product candidates, or governments amend their policies on limiting drug costs or reimbursement practice or other healthcare reform measures within public health provision or private insurance-based models. If a market fails to develop or develops more slowly than anticipated, Midatech may be unable to recover the costs it may have incurred in the development of particular products and may never achieve profitable revenues from that product. In addition, Midatech cannot guarantee that it will continue to identify, develop, manufacture or market its products if market conditions do not support the continuation of such product

Midatech’s ability to generate revenues or profits from products originally licensed to DARA will be dependent upon successful operation of the dedicated sales force that will be contractually provided to Midatech by a third party. Any challenges that may arise in connection with the ongoing operations of the dedicated sales force, or any failure of Midatech’s marketing strategy to achieve the desired results, could have a material adverse effect on Midatech’s financial condition, operating results and stock price.

In October 2013, DARA entered into an agreement with Alamo Pharma Services (“Alamo”) for a 20 person national sales team in the U.S. oncology market. Pursuant to the agreement and a shared sales force agreement with Mission Pharmacal (“Mission”), Alamo’s parent company, since January 2014 the Alamo sales team has promoted Soltamox (tamoxifen citrate) and Gelclair, as well as Mission’s Ferralet 90 (for anemia) and Aquoral (for cancer related dry mouth) and, beginning in the fourth quarter of 2015, Oravig (for oral candidiasis), all products acquired by Midatech in the DARA transaction. Mission’s products are concurrently being promoted by Mission in other non-oncology related therapeutic markets and all are under patent protection throughout the term of the agreement. In March of 2015, DARA also entered into a co-promotion agreement with Mission to co-promote Oravig in the primary care market.

Midatech’s ability to successfully market its product portfolio, and to generate revenues or profits from its products, will depend upon successful operation of the shared sales force that Alamo provides under contract. There can be no assurances that the sales representatives will achieve the desired results or that they will be successful in marketing Midatech’s products. Pursuant to the contractual arrangements governing the sales force, Midatech is responsible for significant financial obligations whether or not the sales force achieves the desired results, including fixed monthly fees subject to an annual escalator, reimbursement for certain expenses, implementation fees, and recruiting fees in connection with new hires for the sales force. If the sales force does not effectively market Midatech’s products as desired, Midatech’s financial condition, results of operations and stock price could be materially adversely affected.
 
 
If Midatech is unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell its products and product candidates, it may be unable to generate any revenue.

With the December 2015 acquisition of DARA, as well as the acquisition of Zuplenz, Midatech is in the early stage of its commercial operations and has only a limited operating history on which to base an evaluation of its current business and prospects. For example, Midatech is in the early stages of building its sales and marketing strategy and organization and has only recently established a national sales team. In order to market any products that may be approved by the EMA, the MHRA, the FDA and other comparable foreign regulatory authorities, Midatech must build its sales, marketing, managerial and other non­technical capabilities or make arrangements with third parties to perform these services. If Midatech is unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, it may not be able to generate product revenue and may not become profitable. Midatech will be competing with many companies that currently have extensive and well-funded sales and marketing operations. Without an internal commercial organization or the support of a third party to perform sales and marketing functions, Midatech may be unable to compete successfully against these more established companies.
 
Some of Midatech’s revenues are derived from licensing or collaboration agreements with other organizations.
 
Some of Midatech’s revenues are derived from licensing or collaboration agreements with other biopharmaceutical companies, research institutes and universities. Midatech’s success is dependent on these commercial arrangements and on similar arrangements for future exploitation of product candidates in development that have not yet been partnered. Midatech’s collaborators have substantial responsibility for some of the development and commercialization of Midatech’s product candidates. Certain of Midatech’s collaborators also have significant discretion over the resources they devote to these efforts. Midatech’s success, therefore, will in part depend on the ability and efforts of those third parties. Midatech cannot guarantee that these collaborators will devote sufficient resources to collaborations with Midatech or that Midatech’s product candidates can be developed and commercialized without these collaborators. In addition, there can be no assurance that any company that enters into agreements with Midatech will not pursue alternative technologies, either on its own or in collaboration with others, including Midatech’s competitors, as a means of developing treatments for the conditions targeted by those products which Midatech has licensed. Some of Midatech’s collaboration agreements are contracted, and are likely to be contracted in the future, with partners who are in strong negotiating positions and who have greater financial resources than Midatech. While Midatech seeks to negotiate contracts on terms that it considers are the most beneficial to it, a number of existing contracts contain, and Midatech expects that future contracts may contain, what could be considered potentially onerous terms for Midatech, such as (in some cases) on-demand termination, uncapped indemnities, extensive warranties and broad confidentiality restrictions (in terms of scope and time).
 
If claims on liability and indemnity were to be successfully made under such contracts (i) Midatech could be liable for substantial damage awards that may significantly exceed its liability insurance coverage by unknown but significant amounts; (ii) such claims could result in early termination of contracts; and/or (iii) Midatech could incur financial penalties, all of which could materially and adversely affect Midatech’s financial condition.
 
Further, if Midatech fails to meet its obligations under its licensing agreements or collaboration agreements, Midatech’s licensors or collaborators may have the right to terminate these agreements. Any uncured, material breach under the licenses or collaboration agreements could result in Midatech’s loss of its rights and may lead to a complete termination of its product development and any commercialization efforts for the applicable product candidate.
 
The pharmaceutical and biotechnology industries are highly competitive.
 
The development and commercialization of new drug products is highly competitive. Midatech’s business faces competition from a range of major and specialty pharmaceutical and biotechnology companies worldwide with respect to its products and product candidates, and will face competition in the future with respect to any product candidates that it may seek to develop or commercialize. In addition to developing its product candidates, Midatech’s focus is on the commercialization of the following oncology supportive care and oncology treatment pharmaceutical products:

 
·
Zuplenz, the only FDA-approved oral soluble film indicated for moderately emetogenic chemotherapy-induced nausea and vomiting (“CINV”), radiotherapy-induced nausea and vomiting (“RINV”), and post-operative nausea and vomiting (“PONV”) ;
 
 
·
Gelclair, an FDA-cleared product indicated for the management and relief of pain due to oral mucositis;
 
 
 
·
Oravig, an orally dissolving buccal tablet approved for oral thrush; and
 
 
·
Soltamox, an FDA-approved oral liquid solution of tamoxifen citrate, for the prevention of breast cancer.
 
In addition, the Alamo sales team also co-promotes (with Mission) two Mission products, Ferralet 90 (for anemia) and Aquoral (for dry mouth).
 
There are a number of pharmaceutical and biotechnology companies that currently market and sell products or are pursuing development of products similar to Midatech’s technology, products and product candidates. With respect to its product candidates, from a technology perspective, Midatech believes other companies using gold nanoparticle technologies include AuraSense Therapeutics, CytImmune Sciences, Inc., and Nanospectra Biosciences, Inc. From a therapeutic perspective, Midatech believes other companies using non-injectable insulin include Mannkind Corporation, Oramed Pharmaceuticals, Inc., and Generex Biotechnology Corporation. Midatech is one of the few companies focused on buccal administration. In oncology, there are marketed nanodrugs on the market including a paclitaxel protein-bound particles for injectable suspension, known by its brand name Abraxane and marketed by Celgene Corporation for breast and various other cancers, doxorubicin HCI liposome injection, known by its brand name Doxil and marketed by Janssen Products for ovarian cancer, lyso-thermosensitive liposomal doxorubicin, known by its brand name ThermoDox and marketed by Celsion Corporation for breast and liver cancer, as well as a number of drugs in development for various cancers at Phase I or II.
 
With respect to the products Midatech commercializes, Gelclair competes with similarly categorized products, as well as a compounded, drug prescription product known as “Magic Mouthwash,” which is not marketed or sold by any pharmaceutical company, but rather often compounded by independent pharmacies. While Zuplenz and Solatamox have no specific competition, each of the ondansetron and tamoxifen markets are comprised of generic oral tablets. With respect to Oravig, the oral thrush market is currently serviced only by generic products, such as nystatin.
 
Some of these competitive products and therapies are based on scientific approaches that are the same or similar to Midatech’s approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
 
Midatech’s competitors in the biotechnology and pharmaceutical industries may have superior research and development capabilities, products, manufacturing capability or sales and marketing expertise. Many of Midatech’s competitors may have significantly greater financial and human resources and may have more experience in research and development.
 
As a result of these factors, Midatech’s competitors may obtain regulatory approval of their products more rapidly than Midatech is able to or may obtain patent protection of other intellectual property rights that limit Midatech’s ability to develop or commercialize its product candidates. Midatech’s competitors may also develop products that are more effective, more widely used and less costly than its own products, and may be more successful in manufacturing and marketing their products.
 
Midatech anticipates that it will face increased competition in the future as new companies enter Midatech’s markets and alternative products and technologies become available. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of Midatech’s competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with Midatech in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, its programs.
 

The success of any products Midatech may commercialize will depend on the degree of market acceptance by physicians, patients, healthcare payers and others in the medical community.

Any products that Midatech acquires or brings to the market may not gain market acceptance by physicians, patients, healthcare payers and others in the medical community. If these products do not achieve an adequate level of acceptance, Midatech may not generate material product revenues and may not become profitable. The degree of market acceptance of Midatech’s products and product candidates, if approved for commercial sale, will depend on a number of factors, including, but not limited to:

 
·
the prevalence and severity of any side effects;

 
·
the efficacy and potential advantages of alternative treatments;

 
·
price;

 
·
the willingness of physicians to prescribe Midatech’s products; and

 
·
sufficient coverage or reimbursement by the Centers for Medicare and Medicaid Services and third party payers.

Midatech’s products, and any product candidates it may commercialize, may become subject to unfavorable pricing regulation, third party reimbursement practices or healthcare reform initiatives, which could harm Midatech’s business.

The regulations that govern marketing approvals, pricing and reimbursement for new drug and biological products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, Midatech may obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay its commercial launch of the product, possibly for lengthy time periods, which could negatively impact the revenues it is able to generate from the sale of the product in that particular country. Adverse pricing limitations may hinder Midatech’s ability to recoup its investment in one or more product candidates even if its product candidates obtain marketing approval.
 
Midatech’s ability to commercialize any products successfully will also depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third party payors, such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels. A primary trend in the healthcare industry is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Third party payors also may seek additional clinical evidence, beyond the data required to obtain marketing approval, demonstrating clinical benefits and value in specific patient populations, before covering Midatech’s products for those patients. Midatech cannot be sure that coverage and reimbursement will be available for any product that it commercializes and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product Midatech commercializes or any product candidate for which it obtains marketing approval. If reimbursement is not available or is available only to limited levels, Midatech may not be able to successfully commercialize any product or product candidate for which it obtains marketing approval.
 
 
In the United States in the past, payors have implemented reimbursement metrics and periodically revised those metrics as well as the methodologies used as the basis for reimbursement rates, such as average sales price (“ASP”), average manufacturer price (“AMP”), and actual acquisition cost. For drugs furnished by hospital outpatient departments, separate payment is not made by Medicare for products that do not exceed a cost per day threshold. It is possible that Midatech’s products also would not be paid separately by Medicare in this setting. The existing data for reimbursement based on these metrics is relatively limited, although certain states have begun to survey acquisition cost data for the purpose of setting Medicaid reimbursement rates. The Centers for Medicare and Medicaid Services (“CMS”), the federal agency that administers the Medicare and Medicaid programs, has made draft National Average Drug Acquisition Cost (“NADAC”) and draft National Average Retail Price (“NARP”) data publicly available on at least a monthly basis. In July 2013, CMS suspended the publication of draft NARP data, pending funding decisions. In November 2013, CMS moved to publishing final rather than draft NADAC data and has since made updated NADAC data publicly available on a weekly basis. As a result of this continuous evolution, it may be difficult to project the impact of these evolving reimbursement mechanics on the willingness of payors to cover Midatech’s products in the United States for which it receives regulatory approval. In most European Union countries, prescription drug pricing and/or reimbursement is subject to governmental control. In those countries that impose price controls, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries may require conducting a clinical trial that compares the cost effectiveness of Midatech’s products to other available therapies.
 
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the EMA, the MHRA, the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers Midatech’s costs, including research, development, manufacturing, selling and distribution costs. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover Midatech’s costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and, in the United States, by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. In the United States, third party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Midatech’s inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for any approved products that it develops could have a material adverse effect on its operating results and overall financial condition.
 
Recently enacted and future legislation in the United Kingdom, United States and other foreign jurisdictions may increase the difficulty and cost for Midatech to obtain marketing approval of and commercialize its products and product candidates and affect the prices it may obtain.
 
In the United Kingdom, United States and other foreign jurisdictions, legislative and regulatory changes and proposed changes regarding the healthcare system could prevent or delay marketing approval of Midatech’s product candidates, restrict or regulate post-approval activities and affect its ability to profitably sell any products or product candidates for which it obtains marketing approval. Members of the European Union, or signatories thereto, are obliged to integrate directives into their national laws. European Union regulations, as in other European Union Member States, become immediately and directly enforceable in the member territories. These include without limitation:

 
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Directive 2001/83/EC of 6 November 2001 on the European Community code as regards medicinal products for human use;
 
 
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Commission Directive 2003/94/EC of October 8, 2003 enforcing principles and guidelines of good manufacturing practice as they related to medicinal products and investigational medicinal products for human use;
 
 
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Commission Directive 2005/28/EC of April 8, 2005 establishing the principles and guidelines for good clinical practice relating to investigational medicinal products for human use, and the authorization requirements for the manufacturing or import thereof; and
 
 
 
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Council Directive 89/105/EEC, of December 21, 1988, addressing the transparency of measures that regulate pricing of medicinal products for human use and their inclusion in national health insurance systems.
 
In the United Kingdom, the regulation of medicinal products derives from European Union legislation, particularly Directive 2001/83/EC on the European Community code relating to medicinal products for human use, and Regulation (EC) 726/2004 on the authorization and supervision of medicinal products and establishing the EMA. This legislation has been adopted in the United Kingdom by the Human Medicines Regulations 2012 (SI 2012/1916) and applied through the MHRA, which is the executive agency of the Department of Health implementing pharmaceutical legislation in the United Kingdom.
 
In the European Union, marketing approvals can be submitted through the national, mutual recognition or decentralized procedures. For marketing authorizations submitted through the centralized procedure, the EMA is responsible. The EMA advises the European Commission in relation to decisions on marketing authorizations.
 
Reimbursement in the European Union is typically controlled by statutory stipulations and controls on pharmaceutical pricing. Healthcare is broadly divided into public and private health. Products that are not to be supplied through the countries’ public health services are typically less subject to price controls. All medicines validly prescribed on a public health prescription are in principle reimbursed from that country’s public funds.
 
In many European Union member states and signatories, a separate cost/benefit analysis may be required or requested (not a legal requirement) in order for prescribed products to be reimbursed. In the United Kingdom, most new medicines undergo an assessment by the NICE, which will issue guidance on if and how to use the product in the National Health Service (the “NHS”), in England and Wales. This decision is largely based on the opinion of NICE regarding clinical effectiveness and cost effectiveness relative to alternative therapies. NICE appraisals follow a comprehensive and inclusive process including consultations with and contributions from stakeholders. Clinicians are expected to take NICE’s guidance into account when making prescribing decisions. Where NICE issues a positive recommendation, NHS bodies are required to make funding available to cover the cost of the product as a treatment option, consistent with NICE’s guidance. In contrast, products which are not recommended by NICE are generally not funded on a routine basis.
 
In the United States, in recent years, Congress has considered reductions in Medicare reimbursement levels for drugs administered by physicians. CMS also has authority to revise reimbursement rates and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price Midatech can receive for those products. While Medicare regulations apply only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payors.
 
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act”). This law substantially changes the way healthcare is financed by both governmental and private insurers in the United States, and significantly impacts the pharmaceutical industry. The Affordable Care Act is intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms. The Affordable Care Act expanded manufacturers’ rebate liability under the Medicaid program from fee-for-service Medicaid utilization to include the utilization of Medicaid managed care organizations as well; increased the minimum Medicaid rebate due for most innovator drugs in general from 15.1% of average manufacturer price to 23.1% of average manufacturer price; and capped the total rebate amount for innovator drugs at 100% of average manufacturer price. The Affordable Care Act and subsequent legislation also changed the definition of AMP. The Affordable Care Act requires pharmaceutical manufacturers of branded prescription drugs to pay a branded prescription drug fee to the federal government. Each such manufacturer pays a prorated share of the branded prescription drug fee of $3.0 billion in 2015, based on the dollar value of its branded prescription drug sales to certain federal programs identified in the law. Substantial new provisions affecting compliance have also been enacted, which may affect Midatech’s business practices with healthcare practitioners if its product candidates are approved and marketed in the United States. The Affordable Care Act also expanded the 340B program to include additional types of covered entities.
 
 
It appears likely that the Affordable Care Act will continue the pressure on pharmaceutical pricing, especially under the Medicare and Medicaid programs, and may also increase regulatory burdens and operating costs.
 
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. Beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were reduced by 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012. The Bipartisan Budget Act of 2013 extended the 2% reduction to 2023, and the Protecting Access to Medicare Act of 2014 extended the 2% reduction, on average, to 2024. If Congress does not take action in the future to modify these sequestrations, Medicare Part D plans could seek to reduce their negotiated prices for drugs. Other legislative or regulatory cost containment provisions, as described below, could have a similar effect.
 
Midatech cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on its products or product candidates, if any, may be.
 
Midatech is subject to environmental laws and regulations in the United Kingdom, the European Union, and the United States that govern the use, storage, handling and disposal of hazardous materials and other waste products.
 
Midatech is subject to English law, the European Union’s laws and regulations, and European Union and United States environmental laws and regulations governing the use, storage, handling and disposal of hazardous materials and other waste products. Midatech has health and safety policies and procedures in place to assess the risks associated with use of hazardous materials, and the assessment includes information for employees on how the substances should be used to avoid contamination of the environment and inadvertent exposure to themselves and their colleagues. Despite its precautions for handling and disposing of these materials, Midatech cannot eliminate the risk of accidental contamination or injury. In the event of a hazardous waste spill or other accident, Midatech could be liable for damages, penalties or other forms of censure. If Midatech fails to comply with any laws or regulations, or if an accident occurs, Midatech may have to pay significant penalties and may be held liable for any damages that result. This liability could exceed Midatech’s financial resources and could harm its reputation. Midatech may also have to incur significant additional costs to comply with current or future environmental laws and regulations. Midatech’s failure to comply with any government regulation applicable to its laboratory and the materials used in its laboratory may adversely affect its ability to develop, produce, market or partner any products it may commercialize or develop.
 
Midatech’s success depends in part on its ability to protect its rights in its intellectual property, which cannot be assured.
 
Midatech’s success and ability to compete effectively are in large part dependent upon exploitation of proprietary technologies and products that Midatech has developed internally or through joint ventures or has acquired or in- licensed. To date, Midatech has relied on copyright, trademark and trade secret laws, as well as confidentiality procedures, non-compete and/or work for hire invention assignment agreements and licensing arrangements with its employees, consultants, contractors, customers and vendors, to establish and protect its rights to its technology and, to the best extent possible, control the access to and distribution of its technology, software, documentation and other proprietary information, all of which offer only limited protection. Where Midatech has the right to do so under its agreements, it seeks to protect its proprietary position by filing patent applications in the United States, the United Kingdom and worldwide related to its novel technologies and products that are important to its business. The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of Midatech’s patents, including those patent rights licensed to Midatech by third parties, are highly uncertain. There can be no assurance that:
 
 
 
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the scope of Midatech’s patents provides and will provide Midatech with exclusivity with respect to any or all of its products and technologies, as well as any other technologies and/or products that address the same problems as Midatech’s technologies and products by a different means, whether in the same manner as Midatech or not;

 
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pending or future patent applications will be issued as patents;

 
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Midatech’s patents, and/or those patents to which Midatech is licensed, are and will remain valid and enforceable and will not be subject to invalidity or revocation proceedings and that such proceedings will not result in a complete or partial loss of rights;

 
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Midatech’s entitlement to exploit patents from time to time (including patents registered solely in Midatech or its affiliates’ name or in the joint names of Midatech or an affiliate and a third party or patents which are licensed to Midatech) is and will be sufficient to protect Midatech’s core intellectual property rights against third parties, its commercial activities from competition or to support comprehensively its ability to develop and market its proposed products either now or in the future;

 
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the lack of any particular patents or rights to exploit any particular patents, and the scope of Midatech’s patents, will not have a material adverse effect on Midatech’s ability to develop and market its proposed products, either now or in the future;

 
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Midatech has or will have the resources to pursue any infringer of: (i) patents registered in its name (whether solely or jointly with a third party) from time to time; or (ii) patents licensed to Midatech where Midatech or an affiliate has the financial responsibility to bring such infringement actions pursuant to the relevant license agreement;

 
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Midatech will develop technologies or products which are patentable, either alone or in conjunction with third parties;

 
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the ownership, scope or validity of any patents registered in Midatech’s name (either solely or jointly) from time to time will not be challenged by third parties, including parties with whom Midatech, or any affiliate, has entered into collaboration projects or co-ownership arrangements and that any such challenge will not be successful;

 
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any patent or patent application owned solely or jointly by Midatech will not be challenged on grounds that Midatech failed to identify the correct inventors or that Midatech failed to comply with its duty of disclosure to the United States Patent and Trademark Office or any equivalent office in a foreign jurisdiction having a disclosure requirement;

 
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any issued patent in Midatech’s sole or joint name from time to time will not be challenged in one or more post-grant proceedings, including but not limited to inter partes review, derivation proceedings, interferences, and that like; and that any such challenge will not result in a complete or partial loss of rights to such issued patent or patents;

 
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any patent applications in Midatech’s sole or joint name from time to time will not be opposed by any third party, including parties to collaboration, co-existence and any other contractual relationship with Midatech or any of its members;

 
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the license agreements between Midatech and third parties are and will be valid and subsisting in the future or until their expiry dates, and that Midatech has complied with its contractual obligations under the license agreements;
 
 
 
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all intellectual property capable of being commercialized that is or has been generated pursuant to collaboration agreements between Midatech and third parties will be or has been identified;

 
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all intellectual property generated pursuant to collaboration agreements and to which Midatech has a contractual entitlement or generated by employees has been lawfully assigned into Midatech’s sole name (or to one of its subsidiaries);

 
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in respect of all intellectual property generated pursuant to a collaboration agreement between Midatech and a third party to which Midatech and that third party have a joint contractual entitlement, that such intellectual property has been lawfully assigned into joint names and the rights between Midatech and that third party are properly regulated by a co-ownership agreement; and

 
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beyond contractual warranties, the licensors of intellectual property to Midatech or affiliate own the relevant patents and that those patents have not and will not be the subject of, or subject to, infringement, invalidity or revocation actions.

The steps Midatech has taken to protect its proprietary rights may not be adequate to preclude misappropriation of its proprietary information or infringement of its intellectual property rights, both inside and outside of the United Kingdom and United States. The rights already granted under any of Midatech’s currently issued patents and those that may be granted under future issued patents may not provide Midatech with the proprietary protection or competitive advantages it is seeking. If Midatech is unable to obtain and maintain patent protection for its technology and products, or if the scope of the patent protection obtained is not sufficient, Midatech’s competitors could develop and commercialize technology and products similar or superior to Midatech, and Midatech’s ability to successfully commercialize Midatech’s technology and products may be adversely affected.
 
With respect to patent rights, Midatech does not know whether any of the pending patent applications for any of its licensed compounds will result in the issuance of patents that protect its technology or products, or which will effectively prevent others from commercializing competitive technologies and products. Although Midatech has a number of issued patents covering its technology, its pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Further, the examination process may require Midatech to narrow the claims, which may limit the scope of patent protection that may be obtained. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that Midatech owns or has licensed from third parties may be challenged in the courts or patent offices in the European Union, United Kingdom, the United States and other foreign jurisdictions. Overall, such challenges may result in the loss of patent protection, the narrowing of claims in such patents, or the invalidity or unenforceability of such patents, which could limit Midatech’s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for its technology and products. Protecting against the unauthorized use of Midatech’s patented technology, trademarks and other intellectual property rights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third party infringement or misappropriation of Midatech’s intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.
 
The patent prosecution process is expensive and time-consuming, and Midatech may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that Midatech will fail to identify patentable aspects of inventions made in the course of its development and commercialization activities before it is too late to obtain patent protection on them. Further, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Midatech expects to seek extensions of patent terms where they are available in any countries where it is prosecuting patents. However, the applicable authorities, including the FDA in the United States, and any equivalent regulatory authority in other countries, may not agree with Midatech’s assessment of whether such extensions are available, and may refuse to grant extensions to its patents, or may grant more limited extensions than it requests. If this occurs, Midatech’s competitors may be able to take advantage of its investment in development and clinical trials by referencing its clinical and preclinical data and launch their product earlier than might otherwise be the case. Changes in either the patent laws or interpretation of the patent laws in the European Union, the United Kingdom, the United States and other countries may diminish the value of Midatech’s patents or narrow the scope of its patent protection. The laws of foreign countries may not protect Midatech’s rights to the same extent as the laws of the United Kingdom or the United States, and these foreign laws may also be subject to change. Publication of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications typically are not published until 18 months after filing or, in some cases, not at all. Therefore, Midatech cannot be certain that it was the first to make the inventions claimed in its owned or licensed patents or pending patent applications, or that it was the first to file for patent protection of such inventions.
 
 
Previously, in the United States, assuming the other requirements for patentability are met, the first to make the claimed invention was entitled to the patent. Outside the United States, the first to file a patent application is entitled to the patent. In March 2013, the United States transitioned to a “first to file” system in which the first inventor to file a patent application will be entitled to the patent. Under either the previous or current system, third parties will be allowed to submit prior art prior to the issuance of a patent by the United States Patent and Trademark Office, and may become involved in opposition, derivation, reexamination, inter-partes review or interference proceedings challenging Midatech’s patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, Midatech’s patent rights, which could adversely affect its competitive position with respect to third parties.
 
Midatech’s commercial success depends, in part, upon Midatech not infringing intellectual property rights owned by others.
 
Although Midatech believes that it has a proprietary platform for its technologies and products, Midatech cannot determine with certainty whether any existing third party patents or the issuance of any third party patents in the future would require it to alter its technology, obtain licenses or cease certain activities. Midatech may become subject to claims by third parties that its technology infringes their intellectual property rights, in which case it will have no option other than to defend the allegation, which may be possible to resolve through negotiation or which might result in court proceedings. An adverse outcome in any of these circumstances is that Midatech might be subject to significant liabilities, be required to cease using a technology or to pay license fees (both prospectively and retrospectively); and may be subject to the payment of significant damages. Midatech could incur substantial costs in any litigation or other proceedings relating to patent rights, even if it is resolved in Midatech’s favor. If the proceedings occur in the United States, it is likely that Midatech will be responsible for its own legal costs, no matter the outcome of the litigation. In contrast, in the United Kingdom, the losing party typically is ordered to pay the winning party’s costs, although it is rare to have a complete recovery of all costs from the losing side. Some of Midatech’s competitors may be able to sustain the costs of complex litigation more effectively or for a longer time than Midatech can because of their substantially greater resources. In addition, uncertainties or threatened or actual disputes relating to any patent, patent application or other intellectual property right (including confidential information) could have a material adverse effect on Midatech’s ability to market a product, enter into collaborations in respect of the affected products, or raise additional funds.
 
The policing of unauthorized use of Midatech’s patented technologies and products is difficult and expensive. There can be no assurance that the steps Midatech takes will prevent misappropriation of, or prevent an unauthorized third party from obtaining or using, the technologies, know-how and products Midatech relies on. In addition, effective protection may be unavailable or limited in some jurisdictions. Any misappropriation of Midatech’s proprietary technology, products and intellectual property could have a negative impact on Midatech’s business and its operating results. Litigation may be necessary in the future to enforce or protect Midatech’s rights or to determine the validity or scope of the proprietary rights of others. Litigation could cause Midatech to incur substantial costs and divert resources and management attention away from its daily business and there can be no guarantees as to the outcome of any such litigation. In addition, a defendant in any such litigation may counterclaim against Midatech, resulting in additional time and expense to defend against such a counterclaim, which defense may not be successful.
 
 
Midatech may become involved in lawsuits to protect or enforce its intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe Midatech’s patents or misappropriate or otherwise violate its intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary in the future to enforce or defend Midatech’s intellectual property rights, to protect its trade secrets or to determine the validity and scope of its own intellectual property rights or the proprietary rights of others. This can be expensive and time consuming. Many of Midatech’s current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual property rights than it can. Accordingly, despite Midatech’s efforts, it may not be able to prevent third parties from infringing upon or misappropriating its intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm Midatech’s business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to Midatech is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that Midatech’s patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of Midatech’s patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Midatech’s confidential information could be compromised by disclosure during this type of litigation.
 
Third parties may initiate legal proceedings alleging that Midatech is infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of Midatech’s business.
 
Midatech’s commercial success depends upon Midatech’s ability and the ability of its collaborators to develop, manufacture, market and sell its product candidates, and to use its proprietary technologies without infringing the proprietary rights of third parties. Midatech may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to its products and technology. Third parties may assert infringement claims against Midatech based on existing patents or patents that may be granted in the future. If Midatech is found to infringe a third party’s intellectual property rights, it could be required to obtain a license from such third party to continue developing and commercializing its products and technology. However, Midatech may not be able to obtain any required license on commercially reasonable terms or at all. Even if Midatech is able to obtain a license, it may be non-exclusive, thereby giving its competitors access to the same technologies licensed to it. Midatech could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, Midatech could be found liable for monetary damages. A finding of infringement could prevent Midatech from commercializing its products or product candidates or force it to cease some of its business operations, which could materially harm its business. Any claims by third parties that Midatech has misappropriated their confidential information or trade secrets could have a similar negative impact on its business.
 
Midatech may be subject to claims that its employees have wrongfully used or disclosed alleged trade secrets of their former employers.
 
Many of Midatech’s employees, including its senior management, were previously employed at other biotechnology or pharmaceutical companies. Some of these employees, including members of Midatech’s senior management, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although Midatech tries to ensure that its employees do not use the proprietary information or know-how of others in their work for Midatech, Midatech may be subject to claims that it or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Midatech is not aware of any threatened or pending claims related to these matters or concerning the agreements with its senior management, but in the future litigation may be necessary to defend against such claims. If Midatech fails in defending any such claims, in addition to paying monetary damages, it may lose valuable intellectual property rights or personnel. Even if Midatech is successful in defending against such claims, litigation could result in substantial costs and be a potential distraction to management.
 
 
If Midatech were unable to protect the confidentiality of its trade secrets, its business and competitive position could be harmed.

In addition to seeking patents for some of Midatech’s technology and products, Midatech also relies on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain its competitive position. Midatech seeks to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as its employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. Midatech also enters into confidentiality and invention or patent assignment agreements with its employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose Midatech’s proprietary information, including Midatech’s trade secrets, and Midatech may not be able to obtain adequate remedies for such breaches. In addition, a court may determine that Midatech failed to take adequate steps to protect its trade secrets, in which case it may not be possible to enforce its trade secret rights. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some may be less willing or unwilling to protect trade secrets. If any of Midatech’s trade secrets were to be lawfully obtained or independently developed by a competitor, Midatech would have no right to prevent such competitor from using that technology or information to compete with it, which could harm Midatech’s competitive position.
 
Midatech may face product liability claims stemming from its products.
 
In carrying out its activities, Midatech may potentially face contractual and statutory claims, or other types of claims from customers, suppliers and/or investors. In addition, Midatech is exposed to potential product liability risks that are inherent in the research, development, production and supply of its products. Subjects enrolled in Midatech’s clinical trials, consumers, healthcare providers or other persons administering or selling products based on Midatech’s and its collaborators’ technology may be able to bring claims against Midatech based on the use of such products. If Midatech cannot successfully defend itself against claims that its product candidates or products caused injuries, Midatech could incur substantial costs and liabilities. Irrespective of their merits or actual outcome, liability claims may result in:
 
 
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decreased demand for any product candidates or product that Midatech may develop;
 
 
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termination of clinical trial sites or entire trial programs;
 
 
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significant negative media attention and injury to Midatech’s reputation;
 
 
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withdrawal of clinical trial participants;
 
 
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significant costs to defend the related litigation;
 
 
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substantial monetary awards to trial subjects or patients;
 
 
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loss of revenue;
 
 
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diversion of management and scientific resources from Midatech’s business operations; and
 
 
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the inability to commercialize any products that Midatech may develop.
 
Midatech has obtained product liability insurance coverage with a £8.0 million annual aggregate coverage. Midatech’s insurance coverage may not be sufficient to cover all of its product liability related expenses or losses and may not cover it for any expenses or losses it may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, Midatech may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect it against losses due to product liability. If Midatech determines that it is prudent to increase its product liability coverage based on sales of its products, Midatech may be unable to obtain this increased product liability insurance on commercially reasonable terms or at all. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects, including side effects that may be less severe than those of Midatech’s products. A successful product liability claim or series of claims brought against Midatech could cause the price of the Ordinary Shares and/or Depositary Shares to decline and, if judgments exceed Midatech’s insurance coverage, could decrease its cash and have a material adverse effect its business, results of operations, financial condition and prospects.
 
 
Midatech’s products may be faced with recalls.

Midatech may be faced with the necessity of recalling one or more products or batches of products from the market. This necessity may also occur if no de facto product property exists that makes a recall obligatory, in particular a side effect or defect, but rather if such a property is merely suspected of being present. A recall may result in loss of revenue, damage to reputation and consequential fall in cash flow, among other things. Affected products could not be sold any longer, and moreover, trust among, in particular, doctors and patients could be affected, which could lead to reductions in sales or profits. Further, options for refinancing on the capital market could be negatively affected or even excluded.
 
Midatech relies on third parties to conduct its preclinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, Midatech may not be able to obtain regulatory approval for or commercialize its product candidates and its business could be substantially harmed.
 
Midatech is, and may continue to be, reliant on other parties for the successful development and commercialization of many of its products. Midatech relies upon CROs for the conduct of its clinical studies. Midatech relies on these parties for execution of its preclinical and clinical trials, and controls only certain aspects of their activities. Nevertheless, Midatech is responsible for ensuring that each of its studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and Midatech’s reliance on the CROs or collaboration partners does not relieve it of its regulatory responsibilities. Midatech also relies on third parties to assist in conducting its preclinical studies in accordance with Good Laboratory Practices and requirements with respect to animal welfare. Midatech and its CROs or collaboration partners are required to comply with Good Clinical Practices (“GCP”), which are regulations and guidelines enforced by the MHRA, the FDA, the EMA and comparable foreign regulatory authorities for all of its products in clinical development. Regulatory authorities enforce these GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If Midatech or any of its CROs or partners fail to comply with applicable GCP, the clinical data generated in Midatech’s clinical trials may be deemed unreliable and the EMA, the MHPA, the FDA or comparable foreign regulatory authorities may require Midatech to perform additional clinical trials before approving its marketing applications. Midatech cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of its clinical trials comply with GCP requirements. In addition, Midatech’s clinical trials must be conducted with product produced under cGMP requirements. Failure to comply with these regulations may require Midatech to repeat preclinical and clinical trials, which would delay the regulatory approval process.
 
Midatech’s CROs are not its employees, and except for remedies available to it under such agreements with such CROs, Midatech cannot control whether or not they devote sufficient time and resources to its on-going clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to Midatech’s clinical protocols, regulatory requirements or for other reasons, then Midatech’s clinical trials may be extended, delayed or terminated and it may not be able to obtain regulatory approval for or successfully commercialize its product candidates. As a result, Midatech’s results of operations and the commercial prospects for its product candidates would be harmed, its costs could increase and its ability to generate revenues could be delayed.
 
Because Midatech has relied on third parties, its internal capacity to perform these functions is limited. Outsourcing these functions involves risk that third parties may not perform to Midatech’s standards, may not produce results in a timely manner or may fail to perform at all. In addition, the use of third party service providers requires Midatech to disclose its proprietary information to these parties, which could increase the risk that this information will be misappropriated. Midatech currently has a small number of employees, which limits the internal resources it has available to identify and monitor its third party providers. To the extent it is unable to identify and successfully manage the performance of third party service providers in the future, Midatech’s business may be adversely affected. Though Midatech carefully manages its relationships with its CROs, there can be no assurance that it will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on Midatech’s business, financial condition and prospects.
 
 
Midatech is dependent on third party suppliers, and if it experiences problems with any of these third parties, the manufacturing of its product candidates or products could be delayed, which could harm its results of operations.

Midatech is also dependent upon certain qualified suppliers, of which there are a limited number, for the supply of raw materials, components and manufacturing equipment. Thus, the success of Midatech’s business may be adversely affected by the underperformance of third parties, exploitation by third parties of Midatech’s commercial dependence and by unforeseen interruptions to third parties’ businesses. Although the existence of several alternative suppliers for each function mitigates the risks associated with this dependence, as does the availability of commercial insurance in respect of the impact of accidental events, the failure of a third party to properly to carry out their contractual duties or regulatory obligations would be disruptive to Midatech’s business. Further, any action taken by a third party that is detrimental to Midatech’s reputation could have a negative impact on Midatech’s ability to register its trademarks and/or market and sell its products.
 
In the future, Midatech intends to license certain of its products to other companies for later stages of development and subsequent marketing, and consequently Midatech will be increasingly reliant on securing and retaining such partners once its products advance through the development process. There can be no assurance that Midatech will be able to secure such partners or that, once secured, Midatech’s partners will continue to make the necessary and timely investments in its products to complete their development in the expected time and achieve commercial success.
 
Midatech is exposed to risks related to its partnerships in joint ventures.
 
Midatech participates in, and may expand through, joint ventures, most notably its joint venture with MonoSol Rx LLC to commercialize a transbuccal insulin delivery system. There are certain risks associated with joint venture partners, including the risk that joint venture partners may:
 
 
·
have economic or business interests or goals that are inconsistent with those of Midatech and be in a position to take or influence actions contrary to Midatech’s interests and plans, which may create impasses on decisions and affect Midatech’s ability to implement its strategies;
 
 
·
veto proposals in respect of joint venture operations;
 
 
·
be unable or unwilling to fulfill their obligations under the joint venture or other agreements; or
 
 
·
experience financial or other difficulties.
 
In addition, Midatech is currently entitled to 50% of the economic interest in the MonoSol Rx LLC joint venture. According to the terms of the agreement, in the event of certain specified circumstances in relation to the development of products, either party may subsequently become entitled to either 66% or 75% of the economic interest of the joint venture. Any joint venture arrangements may expose Midatech to the risk that disputes develop between Midatech and joint venture partners, with any litigation or arbitration resulting from any such disputes increasing the Midatech’s expenses and distracting management resources. In addition, there can be no assurance that Midatech will always have a controlling interest in any joint venture in which it currently participates or into which it may enter in the future. As such, joint ventures may disproportionately divert financial and management resources, which may have a material adverse effect on Midatech’s business, financial condition, operating results or prospects.
 
Midatech’s counterparties may become insolvent.
 
There is a risk that parties with whom Midatech trades or has other business relationships with (including partners, joint venturers, customers, suppliers, subcontractors and other parties) may become insolvent. This may be due to general economic conditions or factors specific to that company. In the event that a party with whom Midatech trades becomes insolvent, this could have an adverse impact on the revenues and profitability of Midatech.
 
Midatech may lose its sterile production license and may encounter unexpected difficulties in the scale-up of production to viable clinical trial or commercialization levels.
 
 
Midatech completed a major upgrade of its infrastructure in Spain in September 2014 by integrating a separated sterile production unit within the manufacturing containment area. Through integrating the separated sterile production unit within the manufacturing facility, Midatech can produce clinical candidate compounds under sterile conditions, allowing Midatech to clinically test and evaluate candidate gold nanoparticles-based cancer therapies, which are administered by intravenous injection. The Spanish regulatory authority has inspected the manufacturing facility and has granted the required sterile production licenses and updated cGMP license for European compliance. If the Spanish regulatory authority were to revoke the requisite licenses, Midatech may need to outsource its requirements of the sterile production and cGMP manufacturing, which will increase Midatech’s reliance on third parties to manufacture the candidate compounds to the required standards, and will be therefore be at risk of underperformance and unforeseen interruptions, which could adversely affect Midatech’s business and financial performance.
 
Because of the complex nature of Midatech’s product candidates, it may not be able to manufacture the product candidates in a timely manner at cost or in quantities necessary to successfully commercialize Midatech’s products. Certain of Midatech’s product candidates have historically only been manufactured in small quantities. Later stage development and commercial supply of such products will require Midatech to scale up the manufacture of its products. There can be no assurance that this can be successfully completed or that, if completed, it will result in commercially acceptable manufacturing costs.
 
Midatech’s relationships with customers and third party payors are subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose it to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
 
Healthcare providers, physicians and third party payors play a primary role in the recommendation and prescription of any of Midatech’s products or any product candidate for which Midatech obtains marketing approval. Midatech’s arrangements with third party payors and customers exposes it to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which it markets, sells and distributes its products for which it obtains marketing approval. For example, in the United States, restrictions under applicable federal and state healthcare laws and regulations include the following:
 
 
·
the federal healthcare anti-kickback statute prohibits any person from, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchasing, leasing, ordering or arranging for or recommending of any good or service for which payment may be made, in whole or in part, under federal and state healthcare programs such as Medicare and Medicaid. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand, and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration to those who prescribe, purchase, or recommend pharmaceutical and biological products, including certain discounts, or engaging consultants for as speakers or consultants, may be subject to scrutiny if they do not fit squarely within the exemption or safe harbor. Midatech’s practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. Moreover, there are no safe harbors for many common practices, such as educational and research grants or patient assistance programs;
 
 
·
the federal civil False Claims Act imposes civil penalties, and provides for whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, claims for payment of government funds that are false or fraudulent, 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 concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay money to the federal government. In recent years, several pharmaceutical and other healthcare companies have faced enforcement actions under the federal False Claims Act for, among other things, allegedly submitting false or misleading pricing information to government health care programs and providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have faced enforcement actions for causing false claims to be submitted because of the company’s marketing the product for unapproved, and thus non-reimbursable, uses. In addition, violation of the federal anti-kickback statute may be actionable under the federal civil False Claims Act. Criminal prosecution is possible for making or presenting a false or fictitious or fraudulent claim to the federal government;
 
 
 
·
the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act, among other things, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information. HIPAA also prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services;
 
 
·
the federal Physician Payment Sunshine Act, being implemented as the Open Payments Program, requires certain manufacturers of drugs, devices, biologics and medical supplies to engage in extensive tracking of payments and other transfers of value to physicians and teaching hospitals, including physician ownership and investment interests, and to publicly report such data. Pharmaceutical and biological manufacturers with products for which payment is available under Medicare, Medicaid or the State Children’s Health Insurance Program started tracking such payments in August 2013, and must submit a report on or before the 90th day of each calendar year disclosing reportable payments made in the previous calendar year; and
 
 
·
analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non­governmental third party payors, including private insurers. Several states also require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical products in those states and to report gifts and payments to individual health care providers in those states. Some of these states also prohibit certain marketing-related activities, including the provision of gifts, meals, or other items to certain health care providers. In addition, several states require pharmaceutical companies to implement compliance programs or marketing codes.
 
Midatech, through Midatech US, has initiated participation in the federal Medicaid Rebate Program established by the Omnibus Budget Reconciliation Act of 1990, as well as several state supplemental rebate programs, in connection with the sale of Soltamox and would anticipate participating in these programs with respect to future pharmaceutical products, including Oravig. Though to date invoices for rebates have not been material, under the Medicaid rebate program, Midatech anticipates paying a rebate to each state Medicaid program for its products that are reimbursed by those programs. Federal law requires that any company that participates in the Medicaid rebate program extend comparable discounts to qualified purchasers under the Public Health Service Act pharmaceutical pricing program, which requires Midatech to sell its products to certain customers at prices lower than Midatech otherwise might be able to charge. If products are made available to authorized users of the Federal Supply Schedule, additional pricing laws and requirements apply. Pharmaceutical companies have been prosecuted under federal and state false claims laws in connection with allegedly inaccurate information submitted to the Medicaid Rebate Program or for knowingly submitting or using allegedly inaccurate pricing information in connection with federal pricing and discount programs.
 
Pricing and rebate calculations vary among products and programs. The calculations are complex and may be subject to interpretation by Midatech or its contractors, governmental or regulatory agencies and the courts. Midatech’s methodologies for calculating these prices could be challenged under false claims laws or other laws. Midatech or its contractors could make a mistake in calculating reported prices and required discounts, revisions to those prices and discounts, or determining whether a revision is necessary, which could result in retroactive rebates (and interest, if any). Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. If this were to occur, Midatech could face, in addition to prosecution under federal and state false claims laws, substantial liability and civil monetary penalties, exclusion of Midatech’s products from reimbursement under government programs, criminal fines or imprisonment or the entry into a corporate integrity agreement, deferred prosecution agreement, or similar arrangement.
 
 
In the United Kingdom and other European Union member states, comparable regulations and laws exist in order to maintain a fair healthcare market. The United Kingdom Bribery Act 2010 may also have jurisdiction in relation to unlawful payments or kickbacks in the United Kingdom and elsewhere.
 
Efforts to ensure that Midatech’s business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that Midatech’s business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If Midatech’s operations, including activities conducted by Midatech’s sales team in the promotion of Midatech’s licensed or co-promoted products, are found to be in violation of any of these laws or any other governmental regulations that may apply to us, Midatech may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid in the United States, and the curtailment or restructuring of Midatech’s operations. If any of the physicians or other providers or entities with whom Midatech expects to do business is found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
 
If Midatech is unable to retain and recruit qualified scientists or if any of its ke y executives, ke y emplo y ees or key consultants discontinues his or her employment or consulting relationship with us, this may delay its development efforts or otherwise harm its business.
 
Midatech’s future development and prospects depend to a large degree on the experience, performance and continued service of its senior management team, including members of its Board of Directors. Midatech has invested in its management team at all levels. Midatech has entered into contractual arrangements with its directors and senior management team with the aim of securing the services of each of them. However, retention of these services or the identification of suitable replacements cannot be guaranteed. There can be no guarantee that the services of the current directors and senior management team will be retained, or that suitably skilled and qualified individuals can be identified and employed, which may adversely impact Midatech’s ability to develop its technologies and/or provide its services at the time requested by its customers or its ability to market its services and technologies, and otherwise to grow its business, could be impaired. The loss of the services of any of the directors or other members of the senior management team and the costs of recruiting replacements may have a material adverse effect on Midatech and its commercial and financial performance.
 
The ability to continue to attract and retain employees with the appropriate expertise and skills also cannot be guaranteed. Finding and hiring any additional personnel and replacements could be costly and might require Midatech to grant significant equity awards or other incentive compensation, which could adversely impact its financial results, and there can be no assurance that Midatech will have sufficient financial resources to do so. Effective product development and innovation, upon which Midatech’s success is dependent, is in turn dependent upon attracting and retaining talented technical and scientific personnel, who represent a significant asset and serve as the source of Midatech’s technological and product innovations. If Midatech is unable to hire, train and retain such personnel in a timely manner, the development and introduction of Midatech’s products could be delayed and its ability to sell its products and otherwise to grow its business will be impaired and the delay and inability may have a detrimental effect upon the performance of Midatech.
 
 
Midatech’s employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on its business.

Midatech is exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with applicable regulations, provide accurate information to regulatory authorities, comply with manufacturing standards, comply with healthcare fraud and abuse laws and regulations, report financial information or data accurately, or disclose unauthorized activities to Midatech. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, 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. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to Midatech’s reputation. Midatech has adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions Midatech has taken 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 Midatech and it is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business and results of operations, including the imposition of significant fines or other sanctions.
 
Unexpected facility shutdowns or system failures may occur and Midatech’s disaster recovery plans may not be sufficient.
 
Midatech depends on the performance, reliability and availability of its properties, plant, machinery, laboratory equipment and information technology systems. Midatech may not be able to access its facilities as a result of events beyond its control, such as extreme weather conditions, flood, fire, theft, terrorism and acts of God. Any damage to or failure of its equipment and/or systems could also result in disruptions to Midatech’s operations. A complete or partial failure of Midatech’s information technology systems, or those of its CROs and other third parties on which it relies, or corruption of data could result in Midatech being unable to access information that it needs in order to meet its obligations to its customers or a breach of confidentiality with respect to Midatech’s or its customers’ proprietary information. If such an event were to occur and cause interruptions in Midatech’s operations, it could result in a material disruption of its drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in Midatech’s regulatory approval efforts and significantly increase Midatech’s costs to recover or reproduce the data. Midatech’s disaster recovery plans may not adequately address every potential event and its insurance policies may not cover any loss in full or in part (including losses resulting from business interruptions) or damage that it suffers fully or at all. The occurrence of one or more of these events could have a material adverse effect on Midatech’s business, financial position, reputation or prospects, and might lead to a claim for damages.
 
Midatech’s business may be adversely affected by economic conditions and current economic weakness.
 
Any economic downturn either globally, regionally or locally in any country in which Midatech operates may have an adverse effect on the demand for Midatech’s products. A more prolonged economic downturn may lead to an overall decline in Midatech’s sales, limiting Midatech’s ability to generate a profit and positive cash flow. The markets in which Midatech offers its products are directly affected by many national and international factors that are beyond Midatech’s control, such as political, economic, currency, social and other factors.
 
Midatech is exposed to the risks of doing business internationally.
 
In addition to operations in the United States, Midatech also currently operates in a number of countries in Europe. Midatech’s international operations are subject to a number of risks inherent in operating in different countries. These include, but are not limited to, risks regarding:
 
 
·
currency exchange rate fluctuations;
 
 
·
restrictions on repatriation of earnings;
 
 
·
efforts to develop an international sales, marketing and distribution organization, which may increase   Midatech’s expenses, divert management’s attention from the acquisition or development of product   candidates or cause it to forgo profitable licensing opportunities in these geographies;
 
 
·
unexpected changes in foreign laws and regulatory requirements, including pharmaceutical   regulations;
 
 
 
·
difficulty of effective enforcement of contractual provisions in local jurisdictions;
 
 
·
inadequate intellectual property (including confidentiality) protection in foreign countries;
 
 
·
trade-protection measures, import or export licensing requirements and fines, penalties or suspension   or revocation of export privileges; and
 
 
·
changes in a specific country’s or a region’s political or economic conditions, particularly in   emerging markets.
 
The occurrence of any of these events or conditions could adversely affect Midatech’s ability to increase or maintain its operations in various countries.
 
Midatech has undertaken, and may in the future undertake, additional strategic acquisitions. Failure to integrate acquisitions could adversely affect Midatech’s value.
 
One of the ways Midatech has grown its pipeline and business is through strategic acquisitions, such as its recent acquisition of DARA and the acquisition of Zuplenz from Galena Biopharma. Midatech may, from time to time, evaluate additional acquisition opportunities, and may, in the future, strategically make further acquisitions of, and investments in, businesses and technologies when it believes the opportunity is advantageous to its prospects. There can be no assurance that in the future Midatech will be able to find appropriate acquisitions or investments. In connection with these acquisitions or investments, Midatech may:
 
 
·
issue stock that would dilute its stockholders’ percentage of ownership;
 
 
·
incur debt and assume liabilities; and
 
 
·
incur amortization expenses related to intangible assets or incur large and immediate write-offs.
 
Midatech also may be unable to find suitable acquisition candidates and may not be able to complete acquisitions on favorable terms, if at all. If Midatech does complete an acquisition, this may not ultimately strengthen its competitive position or ensure that it will not be viewed negatively by customers, financial markets or investors. Further, acquisitions, including the acquisition of DARA, could also pose numerous additional risks to Midatech’s operations, including:
 
 
·
problems integrating the purchased business, products or technologies, including the failure to achieve the expected benefits and synergies;
 
 
·
increases to Midatech’s expenses;
 
 
·
the failure to have discovered undisclosed liabilities of the acquired asset or company;
 
 
·
diversion of management’s attention from their day-to-day responsibilities;
 
 
·
harm to Midatech’s operating results or financial condition;
 
 
·
entrance into markets in which Midatech has limited or no prior experience; and
 
 
·
potential loss of key employees, particularly those of the acquired entity.
 
Midatech may not be able to complete one or more acquisitions or effectively integrate the operations, products or personnel gained through any such acquisition without a material adverse effect on its business, financial condition and results of operations.
 
 
Risks Related to Ownership of Midatech’s Securities

The price of each Ordinary Share has been subject to movements on the AIM Market and may continue to do so.

Each Depositary Share represents two Ordinary Shares. A public market has only recently been established for the Depositary Shares and such a market may not be sustained. Both the United States and United Kingdom stock markets have experienced significant volatility, including in pharmaceutical and biotechnology stocks. In particular, the closing price of Midatech’s Ordinary Shares on the AIM Market of the London Stock Exchange (“AIM”) has fluctuated between £1.50 and £3.20 between December 8, 2014 and December 31, 2015, and the closing price of Midatech’s Depositary Shares on NASDAQ has fluctuated between $4.16 and $7.35 between December 7, 2015 and December 31, 2015. The volatility of pharmaceutical and biotechnology stocks does not often relate to the operating performance of the companies represented by the stock. Other price fluctuations are, or may be, directly attributable to financial performance.

Factors that could cause volatility in the market price of each Ordinary Share and the Depositary Shares include:

 
·
the progress of preclinical development, laboratory testing and clinical trials of Midatech’s product candidates;

 
·
the results from Midatech’s clinical programs and any future trials Midatech may conduct;

 
·
developments in the clinical trials of potentially similar competitive products;

 
·
European Medicines Agency, U.S. Food and Drug Administration or international regulatory actions;

 
·
failure of any of Midatech’s product candidates, if approved, to achieve commercial success;

 
·
announcements of the introduction of new products by Midatech or its competitors;

 
·
market conditions in the pharmaceutical and biotechnology sectors;

 
·
developments concerning intellectual property rights;

 
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litigation or public concern about the safety of Midatech’s products;

 
·
market research and comments by securities analysts;

 
·
actual and anticipated fluctuations in Midatech’s operating results;

 
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deviations in Midatech’s operating results from the estimates of securities analysts;

 
·
rumors relating to Midatech or its competitors;

 
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additions or departures of key personnel;

 
·
third party reimbursement policies;

 
·
developments concerning current or future collaborations, strategic alliances, joint ventures or similar relationships; and

 
·
reviews of long-term values of Midatech’s assets, which could lead to impairment charges that could reduce Midatech’s earnings.
 
 
These and other external factors may cause the market price and demand for Depositary Shares or Ordinary Shares to fluctuate substantially, which may limit or prevent investors from readily buying and selling the securities and may otherwise negatively affect the liquidity of, the Depositary Shares or the Ordinary Shares. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of Midatech’s stockholders brought a lawsuit against Midatech, it could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of Midatech’s management.

Depositary Shares may not be as liquid as Ordinary Shares.

Some companies that have issued American Depositary Shares on United States stock exchanges have experienced lower levels of liquidity in their American Depositary Shares than is the case for their ordinary shares listed on their domestic exchange. There is a possibility that Depositary Shares may be less liquid than Ordinary Shares listed on AIM. In addition, investors may incur higher transaction costs when buying and selling Depositary Shares than they would incur in buying and selling common stock.

The rights of holders of Depositary Shares are not the same as the rights of holders of Ordinary Shares.

Midatech is a public limited company organized under the laws of England and Wales. The Depositary Shares represent a beneficial ownership interest in Ordinary Shares. The rights of holders of Depositary Shares will be governed by English law, Midatech’s constitutional documents, the listing rules of AIM (the “AIM Rules”), and the deposit agreement pursuant to which the Depositary Shares are issued. The rights and terms of the Depositary Shares are designed to replicate, to the extent reasonably practicable, the rights attendant to the Ordinary Shares, for which there is currently no active trading market in the United States. However, because of aspects of British law, Midatech’s constitutional documents and the terms of the deposit agreement, the rights of holders of Depositary Shares will not be identical to and, in some respects, may be less favorable than, the rights of holders of Ordinary Shares.

The market price of the Depositary Shares may not be identical, in U.S. dollar terms, to the market price of the Ordinary Shares.

While the market price of Depositary Shares typically fluctuates according to the market price of the Ordinary Shares and according to changes in the U.S. dollar and British pound sterling exchange rate, there is no guarantee that this relationship will be observed at all times, or at any time. The market price of Depositary Shares may differ from the market price of the Ordinary Shares in U.S. dollar terms for a number of reasons, including the relative liquidity of the Depositary Shares and Ordinary Shares.

You may not receive distributions on Ordinary Shares represented by Depositary Shares or any value for them if it is illegal or impractical to make them available to holders of Depositary Shares.

The depositary of the Depositary Shares has agreed to pay to you distributions with respect to cash or other distributions it or the custodian receives on Ordinary Shares or other deposited securities after deducting its agreed fees and expenses. You will receive these distributions in proportion to the number of Ordinary Shares your Depositary Shares represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of Depositary Shares. Midatech has no obligation to take any other action to permit the distribution of its Depositary Shares, Ordinary Shares, rights or anything else to holders of its Depositary Shares. As a result, you may not receive the distributions made on Ordinary Shares or any value from them if it is illegal or impractical for Midatech to make them available to you. These restrictions may have a material adverse effect on the value of your Depositary Shares.
 
 
You may be subject to limitations on transfer of your Depositary Shares.

Your Depositary Shares are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your Depositary Shares generally when Midatech’s books or the books of the depositary are closed, or at any time if Midatech or the depositary deems it advisable to do so because of any requirement of law or government or governmental body, or under any provision of the deposit agreement, or for any other reason.

It may be difficult for you to bring any action or enforce any judgment obtained in the United States against Midatech or members of Midatech’s Board of Directors, which may limit the remedies otherwise available to you.

Midatech is incorporated as a public limited company in England and Wales and the majority of Midatech’s assets are located outside the United States. In addition, all of the members of the Midatech Board of Directors are nationals and residents of countries, including the United Kingdom, outside of the United States. Most or all of the assets of these individuals are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States if you believe your rights have been infringed under the securities laws or otherwise. In addition, a United Kingdom court may prevent you from enforcing a judgment of a U.S. court against Midatech or these individuals based on the securities laws of the United States or any state thereof. A United Kingdom court may not allow you to bring an action against Midatech or its directors based on the securities laws of the United States or any state thereof.

A significant number of Ordinary Shares (in form of Depositary Shares) are issuable pursuant to outstanding options and warrants assumed by Midatech in connection with the acquisition of DARA, and Midatech may sell additional Ordinary Shares in the future. Sales of these shares will dilute the interests of other security holders and may depress the price of the Ordinary Shares and Depositary Shares.

As of December 31, 2015, Midatech had 33,467,504 Ordinary Shares outstanding, of which 4,861,608 Ordinary Shares were represented by 2,430,804 Depositary Shares. As of December 31, 2015, there were 3,034,437 Ordinary Shares issuable upon the exercise of outstanding warrants assumed by Midatech in connection with the acquisition of DARA, with a weighted average exercise price of $9.67 per share, and 721,000 Ordinary Shares   issuable upon the exercise of outstanding options assumed by Midatech in connection with the acquisition of DARA, with a weighted average exercise price of $7.62 per share.

In addition to the foregoing, Midatech may issue additional Ordinary Shares (and Depositary Shares underlying such Ordinary Shares), or other securities convertible into Ordinary Shares, from time to time to finance Midatech’s operations. Midatech may also issue additional shares in connection with stock options or restricted stock granted to our employees, officers, directors and consultants under Midatech’s equity compensation plans. The issuance of the securities underlying these instruments, or perception that issuance may occur, will have a dilutive impact on other stockholders and could have a material negative effect on the market price of our Ordinary Shares and Depositary Shares.

Midatech has no present intention to pay dividends on its Ordinary Shares in the foreseeable future and, consequently, your only opportunity to achieve a return on your investment during that time is if the price of Depositary Shares appreciates.

Midatech has no present intention to pay dividends on its Ordinary Shares in the foreseeable future. Any determination by Midatech’s Board of Directors to pay dividends will depend on many factors, including its financial condition, results of operations, legal requirements and other factors. Accordingly, if the price of the Depositary Shares falls in the foreseeable future and you sell your Depositary Shares, you will lose money on your investment, without the likelihood that this loss will be offset in part or at all by cash dividends.

Midatech is a “foreign private issuer” under the rules and regulations of the SEC and, as a result, is exempt from a number of rules under the Exchange Act and is permitted to file less information with the SEC than a company incorporated in the United States.

Midatech is incorporated as a public limited company in England and Wales and is deemed to be a “foreign private issuer” under the rules and regulations of the SEC. As a foreign private issuer, Midatech is exempt from certain rules under the Exchange Act that would otherwise apply if Midatech were a company incorporated in the United States, including:
 
 
 
·
the requirement to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies with securities registered under the Exchange Act;

 
·
the requirement to file financial statements prepared in accordance with GAAP;

 
·
the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations; and

 
·
the requirement to comply with Regulation FD, which imposes certain restrictions on the selective disclosure of material information.

In addition, Midatech’s officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the related rules with respect to their purchases and sales of Ordinary Shares and Depositary Shares. Accordingly, you may receive less information about Midatech than you would receive about a public company incorporated in the United States and may be afforded less protection under the United States federal securities laws than you would be if Midatech were incorporated in the United States.

Additional reporting requirements may apply if Midatech loses its status as a foreign private issuer.

If Midatech loses its status as a foreign private issuer at some future time, then it will no longer be exempt from such rules and, among other things, will be required to file periodic reports and financial statements as if it were a company incorporated in the United States. The costs incurred in fulfilling these additional regulatory requirements could be substantial.

As a foreign private issuer, Midatech is not required to comply with many of the corporate governance standards of NASDAQ applicable to companies incorporated in the United States.

The Midatech Board of Directors is required to maintain an audit committee comprised solely of three or more directors satisfying the independence standards of NASDAQ applicable to audit committee members. As a foreign private issuer, however, Midatech is not required to comply with most of the other corporate governance rules of NASDAQ, including the requirement to maintain a majority of independent directors, and nominating and compensation committees of its Board of Directors comprised solely of independent directors. Although the AIM Rules and the United Kingdom Corporate Governance Code have comparable requirements, holders of Depositary Shares may not be afforded the benefits of the corporate governance standards of NASDAQ to the same extent applicable to companies incorporated in the United States.

Midatech prepares its financial statements using the British pound sterling as its reporting currency.

Midatech uses the British pound sterling as its financial statement reporting currency. Midatech’s financial results reported in the British pound sterling may differ materially from its results if reported in U.S. dollars due to changes in the exchange rates of the British pound sterling, the U.S. dollar and the currencies of other countries in which Midatech does business. Future changes in currency exchange rates could have a material adverse effect on Midatech’s financial results.

Midatech is an “emerging growth company” and it cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make its securities less attractive to investors.

Midatech is an “emerging growth company,” as defined under the Jumpstart Our Business Startups Act. Midatech will remain an “emerging growth company” for up to five years; provided, however, that if Midatech’s annual gross revenues exceed $1.0 billion, or its non-convertible debt issued within a three-year period or revenues exceeds $1 billion, or the market value of its common shares that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, Midatech would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, Midatech is not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, it has reduced disclosure obligations, including with regard to its audited financial statements and executive compensation, and it is exempt from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
 
 
Midatech identified a material weakness in its internal control over financial reporting, and any failure by Midatech to maintain an effective system of internal controls or provide reliable financial and other information in the future, investor may lose confidence in our financial statements and SEC filings.
 
The Sarbanes-Oxley Act requires, among other things, that Midatech maintain effective internal controls for financial reporting and disclosure controls and procedures. Midatech will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of its internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by management in its internal control over financial reporting.
 
A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from Midatech’s independent registered public accounting firm on the effectiveness of its internal control over financial reporting. However, for as long as Midatech remains an emerging growth company, it intends to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirement.
 
In preparing its financial statements for the year ended December 31, 2015, Midatech identified a material weakness in the effectiveness of its internal controls over financial reporting, as described below in Part II “ Item 15--Controls and Procedures .”  Specifically, Midatech identified the following material weakness in its internal control over financial reporting as of December 31, 2015:
 
 
·
The deficiency in the design and operating effectiveness of internal controls related to the accounting treatment for a non-routine, complex transaction relating to the fair value of share options and warrants assumed by Midatech being required to be treated as a derivative financial liability rather than as an equity instrument. The assumption of these options and warrants was associated with the acquisition of DARA.
 
The material weaknesses described above, or other material weaknesses or significant deficiencies Midatech may become aware of in the future, could result in Midatech determining that its controls and procedures are not effective in future periods or could result in a material misstatement of the consolidated financial statements that would not be prevented or detected.
 
Any failure to maintain effective internal controls over financial reporting could severely inhibit Midatech’s ability to accurately report its financial condition, results of operations or cash flows. If Midatech is unable to conclude that its internal control over financial reporting is effective, or if its independent registered public accounting firm determines it has a material weakness or significant deficiency in its internal control over financial reporting once that firm begin its Section 404 reviews, Midatech could lose investor confidence in the accuracy and completeness of its financial statements and reports, the market price of the Ordinary Shares and/or Depositary Shares could decline, and Midatech could be subject to sanctions or investigations by the NASDAQ, the SEC or other regulatory authorities. Failure to remedy any material weakness in its internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict Midatech’s future access to the capital markets.
 
Midatech is incurring increased costs as a result of operating as a public company, and management will be required to devote substantial time to new compliance initiatives.
 
As a public company in the United Kingdom and United States, Midatech is incurring significant legal, accounting and other expenses that it did not incur as a private company, and these expenses may increase even more after Midatech is no longer an “emerging growth company.” Midatech will be subject to the reporting requirements of the AIM Rules, the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Protection Act, as well as rules adopted, and to be adopted, by the SEC and the NASDAQ Stock Market. Midatech’s management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, Midatech expects these rules and regulations to substantially increase its legal and financial compliance costs and to make some activities more time-consuming and costly. For example, Midatech expect these rules and regulations to make it more difficult and more expensive for it to obtain director and officer liability insurance and it may be required to incur substantial costs to maintain the sufficient coverage. The Company cannot predict or estimate the amount or timing of additional costs it may incur to respond to these requirements. The impact of these requirements could also make it more difficult for Midatech to attract and retain qualified persons to serve on its Board of Directors, its board committees or as executive officers.
 
 
Midatech intends to operate so as to be treated exclusively as a resident of the United Kingdom for tax purposes, but the relevant tax authorities may treat it as also being a resident of another jurisdiction for tax purposes.

Midatech is a public limited company incorporated under the laws of England and Wales. Under current English law, the decisions of the English courts and the published practice of HM Revenue and Customs suggest that Midatech is likely to be regarded as being a United Kingdom resident and should remain so if, as Midatech intends that, (i) all major meetings of its Board of Directors and most routine meetings are held in the United Kingdom with a majority of directors present in the United Kingdom for those meetings; (ii) at those meetings there are full discussions of, and decisions are made regarding, the key strategic issues affecting Midatech and its subsidiaries; (iii) those meetings are properly minuted; (iv) at least some of the directors of Midatech, together with supporting staff, are based in the United Kingdom; and (v) Midatech has permanent staffed office premises in the United Kingdom sufficient to discharge its functions.

Even if Midatech is considered by HM Revenue and Customs as resident in the United Kingdom for United Kingdom tax purposes, as expected, it would nevertheless not be treated as resident in the United Kingdom if (a) it were concurrently resident in another jurisdiction (applying the tax residence rules of that jurisdiction) that has a double tax treaty with the United Kingdom and (b) there is a tiebreaker provision in that tax treaty which allocates exclusive residence to that other jurisdiction. Because this analysis is highly factual and may depend on future changes in Midatech’s management and organizational structure, there can be no assurance regarding the final determination of Midatech’s tax residence. Should Midatech be treated as resident for tax purposes in another jurisdiction other than the United Kingdom, it would be subject to taxation in such jurisdiction in accordance with such jurisdiction’s laws, which could result in additional costs and expenses.

INFORMATION ON THE COMPANY.

A. 
History and Development of the Company

Overview

Midatech was originally formed as a limited liability company under the laws of England and Wales in 2000 under the name Midatech Limited. Midatech Limited acquired its base nanoparticle technology through an assignment of worldwide commercialization rights and joint ownership of patent rights from the Consejo Superior de Investigaciones Cientificas (“CSIC”) in Madrid, Spain. Midatech Limited subsequently advanced and developed this gold nanoparticle (“GNP”) platform technology to enhance the delivery of medicines in major therapeutic indications where clinical therapeutic options are limited, including diabetes and certain cancers such as liver, ovarian and brain (glioblastoma).

In 2011, Midatech Limited entered into a research and development joint venture with MonoSol Rx LLC (“MonoSol”), a U.S. based company specializing in the development and commercialization of oral dissolvable film technology, to form MidaSol Therapeutics GP (“MidaSol Therapeutics”). The joint venture is developing a novel transbuccal delivery, which means delivery administered through the cheek, of insulin product by incorporating Midatech’s patented GNPs into MonoSol’s oral film. Subject to certain specified circumstances, Midatech is entitled to 50% of the economic interest in the joint venture. This product is currently in Phase IIa clinical trials.

In addition to the MidaSol Therapeutics joint venture, Midatech is collaborating with universities, several pharmaceutical and biotechnology companies and the Dana-Faber Cancer Institute (an affiliate of Harvard Medical School), in addition to two major U.S. pharmaceutical companies and one European specialty pharmaceutical company.

Midatech Pharma PLC was incorporated on September 12, 2014 under the laws of England and Wales, to be the holding company of Midatech Limited and Midatech Wales, under registered number 09216368. On December 8, 2014, Midatech completed its initial public offering of its Ordinary Shares in the United Kingdom.
 
 
On December 8, 2014, Midatech acquired Midatech Wales (formerly known as Q Chip) and its subsidiaries in exchange for approximately 5.4 million Ordinary Shares. Founded in 2003 with the acquisition of core intellectual property around micro-fluidics from Cardiff University, Midatech Wales develops a complementary technology and products that allow sustained release of substances over extended periods of time. As well as developing products in its own right, Midatech considers that this technology will provide a platform to incorporate Midatech’s GNP compounds for sustained and extended release.

On December 4, 2015, Midatech acquired DARA and its subsidiaries pursuant to an Agreement and Plan of Merger entered into on June 4, 2015. As a result, DARA became a wholly owned subsidiary of Midatech, and was subsequently renamed Midatech US. For more information, see “ Item 4.B — Business Overview — Acquisition of DARA BioSciences .”

On December 24, 2015, Midatech acquired Zuplenz ®  (ondansetron) Oral Soluble Film (“Zuplenz”), a marketed anti-emetic oral soluble film from Galena Biopharma, Inc. for the prevention of chemotherapy-induced nausea and vomiting, radiotherapy-induced nausea and vomiting, and post-operative nausea and vomiting. Midatech paid total up front consideration of $3.75 million in cash, with further cash payments, totaling up to $26 million, becoming payable if quarterly sales in calendar years 2016 and 2017 and annual sales from 2018 to 2022 exceed specified target sales relating to Zuplenz. For more information, see “ Item 4.B — Business Overview — Acquisition of Zuplenz .”

Midatech’s principal executive office and registered offices are located at 65 Innovation Drive, Milton Park, Abingdon, Oxfordshire, United Kingdom OX14 4RQ and its telephone number is +44 (0)1235 888 303. Midatech’s corporate website is located at www.midatechpharma.com. Information contained on Midatech’s website is not part of, or incorporated in, this annual report. Midatech’s authorized representative in the United States is David Benharris, President of Midatech US. Midatech’s agent for service in the United States is Midatech US, located at 8601 Six Forks Road, Suite 160, Raleigh, North Carolina 27615. Midatech’s Ordinary Shares are traded on AIM, a market operated by the London Stock Exchange plc, under the symbol “MTPH,” and its Depositary Shares are traded on the NASDAQ Capital Market under the symbol “MTP.”

Capital Expenditures

Our capital expenditures amounted to £1.02 million, £1.03 million, and £0.05 million for the years ended December 31, 2015, 2014 and 2013, respectively.

For the year ended December 31, 2014,   the principal expenditure related to an upgrade to the Group’s manufacturing facilities in Bilbao, Spain to enable the manufacture of sterile material for use in human clinical studies. Capital expenditure in the year ended December 31, 2015 included expenditures on three significant programs:

 
·
the fit-out and equipping of new laboratory and office facilities at the Group’s headquarters facility near Oxford, United Kingdom, costing £0.42 million;

 
·
an upgrade of the Group’s information technology infrastructure, including the acquisition of a new accounting and enterprise resource planning software, costing £0.14 million; and

 
·
ongoing development of commercial scale manufacturing equipment for the Group’s sustained release technology, costing £0.18 million.

B. 
Business Overview

Business Overview

Midatech is an international specialty pharmaceutical company focused on the development and commercialization of multiple, high-value, target therapies for major diseases with unmet needs. Midatech’s strategy is to expand its U.S. commercial operations, develop its products (both in-house in rare cancers and with others for other indications) and accelerate the growth of its business through strategic acquisitions of complementary products and technology.
 
 
Midatech is currently commercializing the following oncology treatment and supportive care products through its United States subsidiary, Midatech U.S.:

 
·
Zuplenz ®  (ondansetron) Oral Soluble Film , the only FDA-approved oral soluble film indicated for CINV, RONV and PONV;
 
 
·
Gelclair® oral rinse gel , an FDA-cleared product indicated for the management and relief of pain due to oral mucositis;
 
 
·
Oravig® (miconazole) , an orally dissolving buccal tablet approved for oral thrush; and
 
 
·
Soltamox® , an FDA-approved oral liquid solution of tamoxifen citrate, for the prevention of breast cancer.
 
In addition, the Alamo sales team also co-promotes (with Mission) two Mission products, Ferralet 90 (for anemia) and Aquoral (for dry mouth).

In Europe, Midatech is advancing a pipeline of clinical and preclinical product candidates based on its two proprietary drug delivery platforms, GNP platform technology and sustained release delivery platforms, with a clear focus on the key therapeutic areas of cancer, endocrine disorders (such as diabetes) and immunotherapy for autoimmune diseases.

Midatech’s core technology platform is based on a patented form of gold nanoparticles (“GNPs”), which are developed to improve key parameters of existing and new drugs. GNPs target individual cell types with specific targeting agents and deliver a therapeutic payload in the cell, while ensuring this can be achieved safely. Midatech believes that GNP technology represents the latest generation of nanomedicine and a fast growing sector within the nanomedicine market with demonstrated safety in the clinic to date.

Midatech’s secondary platform of sustained release technology (acquired through its acquisition of Q Chip Limited, a company incorporated under the laws of England and Wales, and since renamed Midatech Pharma (Wales) Limited (“Midatech Wales”)), involves the consistent and precise encapsulation of active drug compounds within polymer microspheres. The microspheres are designed to release the active drug compound into the body in a highly controlled manner over a prolonged period of time, from a number of weeks to three months and potentially longer. Midatech believes that sustained release technology provides the added capacity to sustain the optimal range of drug concentrations, which has wide medical applicability with diverse pharmaceutically active molecules.

Midatech is collaborating with a number of universities, specialty and major pharmaceutical companies to develop its platform technologies into a broad number of products in order to achieve a range of potential revenue opportunities within priority therapeutic areas. Collaboration partners include several pharmaceutical and biotechnology companies and the Dana-Farber Cancer Institute (an affiliate of Harvard Medical School). Furthermore, Midatech has a joint venture with MonoSol to develop and commercialize transbuccal delivery, which means the delivery administered through the cheek, of insulin for diabetic patients using insulin conjugated GNPs formulated into dissolvable, oral film strips.

Midatech has developed a strong intellectual property base and has a wide intellectual property portfolio of granted patents, applications in process, and patent families (a set of patents to protect a single invention in various countries (“Patent Families”)) covering a range of diverse technologies.

Midatech also operates an in-house state-of-the-art nanoparticle manufacturing facility, based in Bilbao, Spain, which Midatech believes is the first licensed active pharmaceutical ingredient, referred to as API, cGMP, facility of its kind in Europe. The facility is licensed to produce sterile material for use in human clinical trials and is capable of manufacturing licensed products. Furthermore, a consortium led by Midatech has been awarded a €7.9 million Horizon 2020 European Union grant (payable in installments) to fund the manufacturing scale-up of clinical-grade therapeutics based on Midatech’s GNP technology, for use in clinical trials and in preparation for commercial products.
 
 
The commercial operations of Midatech US were incorporated into the Midatech results from December 4, 2015, the date of the completion of Midatech ’ s acquisition of DARA. Prior to this, all of Midatech’s revenue comprised income from research and development contracts and grants. Such income is recognized as revenue in the accounting period in which a particular milestone was achieved. Prior to the acquisition of DARA, modest historic revenues meant that no meaningful geographic segmentation could be drawn from the revenues achieved during each period. For 2015, all revenue from Midatech US is attributed to the U.S. market.

 
   
Year ended December 31,
 
(£’s in thousands)
 
2015
   
2014
   
2013
 
Revenue (United States)
    677       --       147  
Revenue (Europe) (1)
    98       25       --  
Grant revenue (2)
    600       132       --  
Total Revenue
    1,375       157       147  
  
 
_______________
 
 
(1)
Including the United Kingdom.
 
 
(2)
Grant revenue is not analyzed by geography.
 
Acquisition of DARA BioSciences

On December 4, 2015, Midatech completed the acquisition of DARA. As a result, DARA became a wholly owned subsidiary of Midatech, and was subsequently renamed Midatech US. In connection with completion of the Merger, each DARA stockholder received without interest, a combination of (i) 0.272 Ordinary Shares, (ii) one contingent value right (“CVR”), which represents the right to receive contingent payments if specified milestones are achieved within agreed time periods, subject to and in accordance with the terms and conditions of that certain Contingent Value Rights Agreement dated as of December 4, 2015 by and among Midatech, DARA, American Stock Transfer & Trust Company, LLC, as the initial rights agent under the CVR Agreement, and certain other parties thereto, and (iii) cash payable in lieu of any fractional Depositary Shares. All Ordinary Shares delivered to former DARA stockholders were in the form of Depositary Shares, each representing the right to receive two Ordinary Shares. Additionally, pursuant to the terms and subject to the conditions of the Merger Agreement, each share of DARA’s issued and outstanding Series A Convertible Preferred Stock, Series B-2 Convertible Preferred Stock and Series C-1 Convertible Preferred Stock was converted into the right to receive, without interest, $1,000 in cash. The total consideration payable to (i) DARA common stockholders (other than with respect to any CVR payment, if any, and cash in lieu of fractional Depositary Shares) was approximately 5.4 million Ordinary Shares, and (ii) DARA preferred stockholders was $635,000 in cash.
 
Midatech US is a specialty pharmaceutical company primarily focused on the commercialization of oncology treatment and supportive care pharmaceutical products. The acquisition of Midatech US provides Midatech with a commercial arm in the United States, with access to a portfolio of products and a revenue stream in Midatech’s targeted therapeutic area of oncology. Midatech US holds exclusive U.S. marketing rights to Soltamox® (tamoxifen citrate) oral solution, which has been approved by the FDA for the prevention and treatment of breast cancer, Gelclair® oral rinse gel, a FDA-cleared oral gel, whose key ingredients are sodium hyaluronate and polyvinylpyrrolidone, for the treatment of certain approved indications in the United States, including the management of pain due to oral mucositis, and Oravig® (miconazole). Midatech US licensed the United States rights to Soltamox from United Kingdom-based Rosemont Pharmaceuticals, Ltd, a United Kingdom-based manufacturer and a subsidiary of Perrigo Company plc, Gelclair from the Helsinn Group in Switzerland, and Oravig from Onxeo S.A. in France.
 
 
On October 25, 2013, DARA entered into an agreement with Alamo Pharma Services (“Alamo”) pursuant to which Alamo provides Midatech US with a dedicated national sales team of 20 sales representatives to promote its commercial products. In addition, DARA signed an agreement, exclusive to the oncology market, with Mission Pharmacal (“Mission”), Alamo’s parent company, to share in the costs and expenses of the sales force (the “Mission support payments”).  The Alamo sales team, in addition to promoting Midatech US’s products Soltamox (tamoxifen citrate) and Gelclair, is also promoting two Mission products: Ferralet® 90 (for anemia), and Aquoral® (for cancer related dry mouth).  
 
On March 9, 2015, DARA entered into a commercialization agreement with Onxeo SA, giving DARA the exclusive, sublicensable, rights to distribute, promote, market and sell Oravig® in the United States as well as the right to seek regulatory approval for Oravig in Canada. Oravig is the first and only orally-dissolving buccal tablet approved for oral thrush. Oravig was launched in the fourth quarter of 2015. At the same time that DARA acquired the exclusive rights to Oravig from Onxeo, it entered into a co-promotion agreement with Mission for Mission to exclusively promote Oravig in the primary care market. Mission will utilize their existing primary care sales force to promote the product within that market segment.  In consideration for receiving the exclusive rights to Oravig, Midatech US will make certain milestone payments of defined sales thresholds.

Acquisition of Zuplenz

In December 2015, following the acquisition of DARA, Midatech acquired certain assets related to Zuplenz ®  (ondansetron) Oral Soluble Film from Galena Biopharma, Inc. (“Galena”). Zuplenz is an FDA-approved marketed anti-emetic oral soluble film used in adult patients for the prevention of highly and moderately emetogenic chemotherapy-induced nausea and vomiting (“CINV”), radiotherapy-induced nausea and vomiting (“RINV”), and post-operative nausea and vomiting (“PONV”). Zuplenz is also approved in pediatric patients with moderately emetogenic CINV.

Pursuant to the terms of that certain Asset Purchase Agreement dated December 17, 2015 (the “Purchase Agreement”), by and between Midatech and Galena, on December 24, 2015, Galena sold and assigned all of its right to certain assets related to Zuplenz to Midatech, including its rights and interests in the License and Supply Agreement, dated July 17, 2014 (the “MonoSol License Agreement”), by and between Galena and MonoSol. Midatech agreed to assume all of Galena’s future obligations under the MonoSol License Agreement. The total potential consideration payable to Galena under the Purchase Agreement includes a $3.75 million upfront payment that was paid upon closing, and future sales milestone payments up to an aggregate of $26 million, consisting of four one-time payments by Midatech based on quarterly sales achieved in calendar years 2016 and 2017 and annual sales from 2018 to 2022 exceeding specified target sales.
  
Midatech launched Zuplenz in April 2016.
    
Midatech’s Strategy

Midatech’s business and commercialization strategy is based on maturing its technology platforms with a clear focus on its key therapeutic areas of oncology, endocrinology and neuroscience (including ophthalmology), along with strategic late stage product focused acquisitions. Together, these are expected to drive a commercial pipeline of products with improved essential parameters, over and above the currently marketed source compound, including safety, tolerability, efficacy and compliance profiles. Midatech believes that its management team has significant industry and technical experience and is highly capable of and committed to building the value of Midatech.

 
Midatech’s business model has four components:

 
·
In-House Products. Development and commercialization of products is done in-house without engaging partners to support the product. This applies particularly to oncology applications.

 
·
Partner Products. Development and commercialization of Midatech’s partner-supported and licensed products, principally in diabetes, ophthalmology and neuroscience.
 
 
 
·
Acquisitions . Acquisitions of later stage, strategic opportunities with complementary focused portfolios, such as DARA; or complementary technologies that are synergistic to that of Midatech, accelerate revenue, and are value accretive.

 
·
Establish Worldwide Commercial Organization . Build on to Midatech’s U.S. commercial operations and establish a European commercial organization upon approval of its own product candidates.

Midatech also aims to expand its vertical integration by leveraging its integrated manufacturing capabilities.

Midatech’s commercialization strategy intends to build a long term, profitable and commercially focused enterprise with revenues generated as follows:

 
·
Research and Development Collaborations . In the near term, revenues are anticipated to be driven by collaborations such as those that currently exist and with new potential customers using Midatech’s technologies to address their pharmaceutical challenges.

 
·
Commercial Operations . Midatech expects that the main growth driver in the period from 2016 to 2018 will be the Midatech US business, with sales coming from its existing commercial product portfolio.

 
·
Partner Licensing and Royalty Deals. In the period from 2016 to 2018, revenue growth is anticipated to be supported by licensing transactions from those partnerships outlined herein, as well as new potential partnerships, with possible product royalties realized from 2016 to 2017.

 
·
In-House Products Commercialization. In the third stage of Midatech’s evolution, expected to be from 2018 to 2019, Midatech’s own products are anticipated to reach market in the specialized orphan sector, and Midatech’s commercial sales organization to be deployed initially in the United States and then in Europe, to drive sales and revenue growth from Midatech’s own product launches.

 
·
Acquisitional. In support of and in addition to above, Midatech may from time to time seek value accretive and synergistic target companies, such as DARA, and portfolios, such as Zuplenz, that would accelerate its own product recurring revenues and profitability via products in market.

In diabetes, Midatech, alongside its MidaSol Therapeutics joint venture partner MonoSol, is currently undertaking a Phase IIa clinical trial with MidaForm™-Insulin-PharmFilm® in humans with Type 1 diabetes. Pending successful completion thereof and positive results, Midatech will explore potential outlicensing deals. Midatech would seek revenues from an initial upfront payment, license payments, manufacturing fees and royalties.

In oncology, Midatech believes that it has the opportunity to leverage its own commercial capabilities in the U.S. and roll out a similar infrastructure in Europe around the market entry of its orphan oncology program products. Midatech believes that the acquisitions of Zuplenz and DARA will accelerate its progress towards achieving this objective. These products require small, dedicated specialty pharmaceutical sales forces. Midatech will also look for further in-licensing acquisition opportunities to grow revenues in this sector.

In neuroscience/ophthalmology, commercialization will focus on products for the treatment of uveitis and other conditions of the eye, Parkinson’s disease, Alzheimer’s disease and multiple sclerosis. Midatech aims to achieve this through partnerships with leading specialty pharmaceutical companies and academic institutions, where Midatech would seek to earn license payments, manufacturing revenue and royalties.

Midatech’s Platform Technologies

Central to Midatech’s business are its two platform technologies that enable the targeted delivery and sustained release of existing therapeutic drugs. Individually, these platforms are expected to offer unique advantages that address current therapeutic challenges. GNP drug conjugate technology, Midatech’s core underpinning technology, may provide improved solubility, stability and offloading of an attached moiety at the target site and may be freely excreted through the kidneys, and microsphere technology, Midatech’s secondary technology used for selected applications, ensures consistently sized monodispersed polymer microparticles that may be engineered for precise and sustained release drug delivery. Combined, Midatech believes that the two technologies provide a platform to deliver therapeutic molecules to the right place (GNPs) at the right time (sustained released).
 

GNP Drug Conjugate Technology

Midatech’s core primary platform technology is based on GNP drug conjugates, a class of carbohydrate- coated GNPs. These nanoparticles can be used to improve key parameters of existing and new drugs, target individual cell types with specific targeting agents and deliver a therapeutic payload in the cell, all while ensuring this can be achieved safely.

GNPs are comprised of a core of gold metal atoms to which an organic layer of carbohydrates (such as glucose, galactose or lactose) are attached via gold-sulphur bonds. The carbohydrate layer stabilizes the metallic core (passivation) and makes the particle both water-soluble and biocompatible. During the self-formation process, linkers for agents—both small molecules (such as chemotherapeutics and other existing therapies) and peptides (such as insulin and other amino acid sequences)—are attached to the gold core, interspaced between the carbohydrates, and attached to the active agent. This process involves intricate yet controlled synthesis that produces multi-component particles that may deliver multiple molecules of a drug to the targeted site.

The effective hydrodynamic diameter of a GNP is approximately 5 nm (the gold core is about 100 atoms of gold and 1.6-1.8 nm in diameter), which Midatech believes is ten-fold smaller than any other delivery vehicle currently in clinical trials. This is comparable with the size of a small globular protein such as hemoglobin, the protein that carries oxygen through the body and which has a diameter of 5.5 nm. By comparison, a strand of DNA, one of the building blocks of human life, is about 2 nm in diameter and a typical human hair is approximately 80,000 nm in width.

Midatech may be able to leverage its patent protected GNP platform technology in multiple therapeutic areas through the development of (i) patentable new chemical entities (NCEs) or (ii) using the particles as carriers of existing pharmaceutical compounds. This can result in new nanoconjugates that may have inherent advantages over existing treatments.

 
Midatech believes the key potential advantages of its core GNP platform technology are:

 
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Solubility. Carbohydrate properties of the GNP drug conjugates enable the transport of non-soluble and lipid soluble compounds to sites of disease.

 
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Releasability. GNP drug conjugates are designed to release the active compound inside the cell as a result of chemistry that keeps the compound stable in plasma, but dissociates and delivers the payload in the cell.

 
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Mobility. Due to the size and charge of the drug conjugates, compounds may be transported to sites of disease that are otherwise very difficult to reach, including across membranes, between cells and through cells to invading tumor margins.

 
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Targetability. Flexible functionalization of GNP chemistry and multiple binding sites provides a platform for several therapeutics and targeting agents all on a single nanoparticle which, together with solubility and mobility characteristics, may enable targeting of disease sites.

 
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Stability. Peptides may be stabilized by GNP drug conjugates due to the fact that the peptides have less freedom to degrade when bound to the fixed platform.

 
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Excretability . Due to their small size, GNP drug conjugates are believed to exit cells and become eliminated via the kidneys and liver.
 
 
 
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Compatibility. As a result of their inertness, biocompatibility and small size, GNP drug conjugates are believed to evade and not disturb the immune system since they are likely not recognized by such cells.

 
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Scalability. Midatech, as a result of having its own cGMP certified manufacturing facility, can execute rapidly, at scale, from discovery through to clinical development.

 
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Protected. Midatech patents and trade secrets currently secure its position within the field of GNPs.

Sustained Release Technology

Midatech’s secondary technology platform (acquired through Midatech Wales) includes precisely and consistently manufactured, sustained release technology which may enable active drug compounds to be released into the body in a highly controlled manner over a prolonged period of time, from a number of weeks to three months, and potentially longer. The sustained release technology encapsulates active drug compounds within polymer micro spheres. Each micro sphere is between 30-70pm in size (by way of example, the width of the average human hair is approximately 80um), with scope to reduce the size through minor modifications to the technology. Each microsphere is manufactured individually in a consistent, semi-continuous flow process which enables the precise engineering of microsphere characteristics such as the surface porosity and internal morphology. Such characteristics impact the release profile in a predictable way. Release of the active drug compound occurs by controlled hydrolysis of the polymer.

The basic rationale of the sustained release drug delivery system is to optimize the biopharmaceutical, pharmacokinetic and pharmacodynamic profile of a drug. Accordingly, its utility is maximized over an extended period of time, side effects are reduced and cure or control of the condition is achieved using the smallest quantity of drug administered by the most suitable route. This may be achieved by the sustained release product releasing the drug such that therapeutic concentrations are achieved quickly and maintained for extended periods of time. The potential advantages of the sustained release drug delivery system over conventional dosage forms include: improved patient compliance due to less frequent drug administration; reduction of fluctuation in steady-state drug levels and have less overshooting or undershooting of target concentrations; maximum utilization of the drug; increased safety margin and a reduction in healthcare costs through improved therapy.

Combination of GNP and Sustained Release Technology

The GNP platform focuses on the delivery of payloads to sites of disease, independent of release rate (which is typically rapid, in minutes to hours). The polymer microsphere technology focuses on controlling and extending the release rate, which can be from weeks to months. Through the encapsulation of GNPs into the polymer microspheres, properties are combined such that the rate of release of the therapeutic molecules may be controlled and substantially extended. Midatech plans to develop a combination of the GNP technology and polymer encapsulation technology for certain applications where sustained release of therapeutics is required.

Preliminary tests indicate that the GNP characteristics are compatible with delivery using the microspheres and Midatech will continue to test and develop the combined technology for selected opportunities. In parallel, Midatech will continue its strategy of developing its portfolio of products on a stand-alone basis for commercialization and value-accretion.

Commercial Stage Products

In connection with the acquisition of DARA, Midatech, through Midatech US, has an exclusive license to Soltamox and Oravig, an exclusive license to distribute, promote and market Gelclair, and a marketing agreement to co-promote two Mission products:  Ferralet 90 and Aquoral. In addition, Midatech also holds the exclusive license to Zuplenz.
 

Oravig

Oravig® (miconazole) is an FDA-approved prescription drug. Oravig is an azole antifungal indicated for the local treatment of oropharyngeal candidiasis in adults. Oravig is the first and only orally-dissolving buccal tablet approved for oral thrush and was launched in the fourth quarter of 2015.

In March 2015, DARA entered into a commercialization agreement with Onxeo, giving it the exclusive, sublicensable, rights to distribute, promote, market and sell Oravig in the United States, as well as the right to seek regulatory approval for Oravig in Canada with the resulting exclusive, sublicensable rights to distribute, promote, market and sell Oravig there. At the same time that DARA acquired the exclusive rights to Oravig from Onxeo, it entered into a co-promotion agreement with Mission for Mission to exclusively promote Oravig in the primary care market. Mission will utilize their existing primary care sales force to promote the product within that market segment. In consideration for receiving the exclusive rights to Oravig, DARA will make certain milestone payments of defined sales thresholds.

Gelclair

In 2012, DARA entered into a distribution and license agreement with Helsinn. DARA was granted an exclusive license to distribute, promote, market and sell Gelclair for the management and relief of pain due to all approved indications in the United States. Gelclair, a unique oral gel whose key ingredients are polyvinlypyrrolidone (PVP) and sodium hyaluronate (hyaluronic acid), is an FDA-cleared product indicated for the management of pain and relief of pain arising from oral lesions of various etiologies, including oral mucositis/stomatitis (caused by chemotherapy or radiation therapy) irritation due to oral surgery, traumatic ulcers caused by braces or ill-fitting dentures, disease and diffuse aphthous ulcers. Gelclair is protected by a U.S. issued patent which expires in 2021. Under the license agreement with Helsinn, Midatech US is obligated to meet minimum sales thresholds during the ten-year term. DARA launched Gelclair in the U.S. in April 2013.

Zuplenz

In December 2015, Midatech acquired from Galena certain assets related to Zuplenz (ondansetron) Oral Soluble Film. Zuplenz was approved by the FDA in adult patients for the prevention of highly and moderately emetogenic CINV, RINV, and PONV, and in pediatric patients for moderately emetogenic CINV. Nausea and vomiting are two of the most common side-effects experienced by post-surgery patients and it is estimated that up to 90% of chemotherapy and up to 80% of radiotherapy patients will experience CINV and RINV, respectively. Midatech launched Zuplenz in April 2016.

The active pharmaceutical ingredient in Zuplenz, ondansetron, is used to prevent nausea and vomiting caused by cancer chemotherapy, radiation therapy, and surgery.  Ondansetron belongs to a class of medications called serotonin 5-HT3 receptor antagonists and works by blocking the action of serotonin, a natural substance that may cause nausea and vomiting. Zuplenz utilizes MonoSol’s proprietary PharmFilm® technology, an oral soluble film that dissolves on the tongue in less than thirty seconds. This rapidly dissolving, oral soluble film eliminates the burden of swallowing pills during periods of emesis and in cases of oral irritation, therefore increasing patient adherence and reducing emergency room visits and hospitalization due to a lack of patient compliance or the patient’s inability to keep the medication down without vomiting. Zuplenz is supplied in both 4 mg and 8 mg ondansetron doses with a safety profile equivalent to other products in the class. Zuplenz has issued and pending U.S. patent applications with an anticipated expiration date of 2029.

MonoSol will exclusively manufacture Zuplenz for marketing by Midatech US in the United States through its expanded commercial organization.

Soltamox

Soltamox Ò  (tamoxifen citrate) oral solution is an FDA-approved drug primarily used to treat breast cancer.  Soltamox is the only liquid formulation of tamoxifen available for sale in the United States.  Oral liquids can provide an effective alternative to solid dose formulations for those patients with dysphagia, or difficulty swallowing, or those who simply prefer to take drug products in liquid form.  Those suffering from dysphagia often have difficulty or experience pain when using oral tablet or capsule products and can benefit from liquid formulations of drugs.  In addition, breast cancer patients receiving chemotherapeutic agents are subject to oral mucositis, which may make liquid medical formulations preferable.
 
  
Soltamox is used primarily for the chronic treatment of breast cancer or for cancer prevention in certain susceptible breast cancer subgroups.  The National Cancer Institute (“NCI”) estimated that in 2014, 232,670 women would be diagnosed with breast cancer and 40,000 women would die as a result of the disease.  Tamoxifen therapy is currently indicated by the FDA for breast cancer patients for five years.  The FDA requires a Boxed Warning on all tamoxifen products, including Soltamox, presenting significant risk information on uterine malignances, stroke and pulmonary embolism.    This warning can be found in the full Soltamox prescribing information at  www.soltamox.com .

Midatech US is party to an exclusive license and distribution agreement with Rosemont Pharmaceuticals, Ltd. (“Rosemont”), a United Kingdom-based oral liquids specialty pharmaceutical company and a subsidiary of Perrigo Company plc, for rights to market Soltamox in the United States.  Soltamox was launched by DARA in the U.S. in the fourth quarter of 2012.  Previously, Soltamox was marketed only in the United Kingdom and Ireland by Rosemont.  Soltamox is protected by a U.S. issued patent which expires in June 2018.  Under the license agreement with Rosemont, Midatech US is obligated to maintain minimum annual purchases of the product through 2018.

Product Candidates

Midatech is currently focused on research and development in three key therapeutic areas to which its two technology platforms (GNP drug conjugates and sustained release) are being applied: diabetes, oncology and neuroscience, including ophthalmology. The following summarizes the status of Midatech’s product candidates.

GNP Drug Conjugates: Oncology

Overview. Midatech is pursuing improved forms of cancer therapy based on combining chemotherapeutic medicines with tumor-targeting molecules or peptides on the same nanoparticle-based conjugate. The aim is to allow highly toxic drugs to be specifically targeted to, and delivered at, the tumor cells while sparing normal tissue, thereby reducing side effects and enhancing efficacy. At present, Midatech is focusing on development of drug candidates for liver hepatocellular carcinoma and brain glioblastoma multiform cancer. Other cancers are continually being researched, including skin squamous cell carcinoma and ovarian cancer.

The benefits of Midatech’s GNPs for cancer therapies notably lie in the fact that they solubilize, mobilize, functionalize, target and stabilize the active therapeutic agents for targeted release at specific organs, cells or sites of disease. Multiple therapeutic and targeting agents or peptides can be attached to a single GNP. GNPs could specifically target tumor cells due to binding the tumor cell surface receptors, or preferential take up of certain molecules by the cell for nutrition or cell processes.

Research and Development Activities. Since the middle of 2013, Midatech has increasingly focused research and development activities on liver, brain and ovarian cancer. GNP drug conjugates are being developed and evaluated for targeting and cytotoxic potential.  Lead candidates for brain glioblastoma multiform cancer and liver hepatocellular carcinoma are expected to be identified based on in vitro and in vivo work during 2016, with formal Investigational New Drug (“IND”) enabling programs for finally selected constructs scheduled to commence in the fourth quarter of 2016.

For brain cancer, Midatech GNPs are being evaluated for their ability to take targeting and therapeutic agents across the Blood Brain Barrier (“BBB”) when agents are administered intravenously. In addition to this systemic approach, Midatech is actively pursuing local delivery directly into the tumor through a technique referred to as Convection Enhanced Delivery (“CED”).  CED bypasses the BBB and delivers therapeutic constructs directly into the tumor via a series of catheters fixed into the substance of the tumors. In February 2016, Midatech conducted a first experimental research treatment on a compassionate use basis in a child diagnosed with diffuse interstitial pontine glioma.  This was conducted jointly with Bristol University in the United Kingdom. The treatment used a non GNP product formulated by Midatech to be water soluble.
 

Midatech anticipates applying for regulatory submission including Treatment IND registration for the treatment of critically ill patients in the United States from 2018 onwards.

Further research and development activities are underway by Midatech in relation to sustained release technology for the treatment of cancer, as described herein.

GNP Drug Conjugates: Immunotherapy

Overview

Gold is known to be a safe and inert material in humans.  Midatech GNPs can be chemically linked to molecules of self-peptide or small antigen that are important in auto immune diseases such as diabetes. Administration of such self-antigen or peptide via appropriate protocols has repeatedly been shown to be effective in the treatment and prevention of Type 1 Diabetes, so called antigen specific immunotherapy (“ASI”). ASI has the advantage over biologics and other immunotherapies that it does not compromise the remainder of the immune system, and therefore is likely to have a much improved safety profile and be suitable for use not only at disease onset but also in disease prevention and for use in children. However, translation of ASI to humans has proved challenging. Midatech is conducting research using its GNP technology as an enabling platform to boost the potential of ASI administered antigen to generate a tolerogenic rather than immunogenic response. Antigen bearing GNPs when delivered into the skin appear to preferentially target specific immune cells, can migrate into the epidermis where there is a very high concentration of these specific immune cells (a property not seen with larger nanoparticles), and can distribute rapidly to lymphoid tissues around the body.  It appears that the GNPs can be immunotolerogenic or immunostimulatory depending on what motifs are attached to them.

Research and Development Activities

With support from a European Union program grant, Midatech is exploring the potential of small GNPs to enhance the efficacy of ASI.  Discovery, preclinical and toxicology work has been conducted between 2012 and 2015, and the program commenced a “first-in-human” study in March of 2016 in the United Kingdom and Sweden.  This study has been approved by MHRA, and MPA approval is pending.

The potential GNP modified immune mechanisms are also being actively researched for potential application in oncology immunotherapy.

GNP Drug Conjugates: Diabetes

Insulin

Overview . Midatech’s most advanced research program is focused on applying its patented GNP technology to develop a method of needle-free delivery of insulin for the treatment of diabetes. This method takes advantage of the fact that attaching a peptide hormone to a GNP stabilizes its characteristics, allowing absorption across the mucosa, or the moist tissue that lines certain parts of the inside of a body, of the cheek. Midatech, together with its joint venture partner MonoSol, has developed a self-dissolving, oral, postage stamp-sized strip containing GNP conjugated insulin, referred to as MidaForm™-Insulin-PharmFilm®. This strip is placed on the inside of the cheek and the GNP-insulin is absorbed into the bloodstream via the mucous membrane of the cheek (i.e. transbuccal application). This mode of administration potentially provides a more convenient, safer and more discrete form of insulin delivery than injections and has the potential to make meal time injections redundant for many patients in the treatment of diabetes.

Despite evidence documenting the benefits of insulin therapy in achieving glycemic control and reducing the risk of long-term diabetes complications, insulin therapy remains underutilized. This underuse reflects barriers to treatment initiation, and obstacles that hinder treatment compliance such as concerns that insulin therapy will be complicated and inconvenient, as well as anxieties about pain and needles. These factors affect adherence to therapy regimens, and thus impact glucose control.  Errors in insulin dose injection and differences in amounts absorbed from injections further curtail the ability of many patients to attain glycemic goals. Lipohypertrophy ‘bumps’ caused under the skin at sites of repeated injections also affect the ability to absorb insulin by up to 25%, and can occur in up to 50% of patients. Safe self-administration of insulin can be compromised in patients that do not have adequate cognitive, visual, literacy/numeracy skills, important factors for elderly patients or those diabetics disabled by diabetic complications. At least one third do not take their insulin as prescribed, including 20% of adults intentionally omitting their doses. This noncompliance and non-adherence to treatment plans is also common in younger patients, despite the critical need for insulin in the management of Type 1 diabetes.
 

Development Activities . In 2011 and 2012, Midatech conducted, and successfully completed, an initial “first-in- human” Phase I safety ascending dose study between November 2011 and March 2012. Key conclusions from the study were that there were no drug related safety concerns in the group of 27 healthy volunteers and that a dose of active drug was delivered humans. Furthermore, the results suggest that conjugated insulin from this prototype MidaForm™-Insulin- PharmFilm® strip enters the bloodstream, and reaches its maximum effect at about 28 minutes on average (versus 40 minutes for NovoRapid®, the active comparator in the study). Data suggest that availability of insulin from the MidaForm™-Insulin-PharmFilm® strip relative to that of NovoRapid® was calculated as 19% to 25%, the ratio of maximum concentration values was 24%, and the total glucose requirement in the study, which is indicative of the potency of the activity administered insulin, with the strip was 55% that of NovoRapid ® .

To further study and confirm these results, a Phase IIa clinical trial with MidaForm™-Insulin-PharmFilm ® in humans with Type 1 diabetes is currently underway in Perth, Australia. The Phase IIa clinical trial consists of 12 patients, male and female, between the ages of 18 to 55, being treated from a screening pool of up to 35 subjects. The participants, all of which are Type 1 diabetics, will undergo treatment initially with three doses (5 international units, referred to iu, 15 iu and 60 iu) of the of MidaForm™-Insulin-PharmFilm® and two comparable doses of injected insulin. The objective of the Phase IIa clinical trial is to establish the pharmacodynamics and pharmacokinetic profile and safety tolerability of MidaForm™-Insulin-PharmFilm ® , in comparison to subcutaneous administered human recombinant insulin. The Phase IIa clinical trial completed in life phase in January 2016, and the clinical study report is expected in the second quarter of 2016. Pending successful completion thereof and positive results, Midatech will explore out-licensing this product.

GNP Drug Conjugates: Neuroscience

Overview. Midatech is pursuing development of drug conjugates that can (i) deliver therapeutic biomolecules to the central nervous system across the blood-brain barrier (“BBB”); and (ii) move freely between cells in the brain and sites of disease in the brain. The distinctive properties of GNP drug conjugates are being evaluated and engineered to improve solubility, stability, movement and delivery across brain endothelium (the thin layer of cells that line the interior surface of blood vessels and lymphatic vessels), which contain pore sizes of approximately 20 nm (the hydrodynamic diameter of a GNP is approximately 3.5 nm). These characteristics permit passive and active movement across the BBB and within the brain. In contrast, other larger nanocompounds are generally cleared by the white blood cell defense system, are too large, insoluble or unstable to cross epithelial or endothelial barriers as effectively as GNP nanoconjugates, or are trapped in the endothelium so that only a small proportion transfer to the central nervous system, reducing the effectiveness of the drug.

Target diseases for this platform include multiple sclerosis, Alzheimer’s and Parkinson’s, where GNPs can potentially deliver therapeutic concentrations of agents that do not normally get into the brain. Target therapies include gene therapy, cytokine-treatments, small molecules, and cytotoxic agents. These agents importantly only require low amounts per cell to exert their effect.

Research and Development Activities. In vitro and in vivo work has focused on engineering GNPs and their payloads to cross the blo od-brain barrier. Nanoparticles were identified within neurons and glial cells more than 10 μm from the nearest microvessel within 10 minutes of intracarotid infusion. Their distribution indicated movement across the endothelial cytosol, and direct transfe r between cells of the brain. The rapid movement of this class of nanoparticle (<5 nm) into the brain demonstrates their potential to carry therapeutic biomolecules or imaging reagents.
 

In short-term studies, the GNPs have been shown to be safe in humans and animal models and to be non- toxic on human brain endothelium and astrocytes (neurological cells that contiguously tile the entire central nervous system) in vitro. Research to date demonstrates that GNP conjugates can cross the BBB effectively in vivo and that GNPs have the potential to carry a therapeutic cargo to the central nervous system, remain relatively stable as they cross the endothelium and then release their cargo/ligand (an ion or neutral molecule that bonds to a central metal atom or ion) once they have crossed. Examination of the stability of the covalently-coated GNPs in reducing conditions corresponding to the liquid found inside biological cells, or cytosol, indicates that they are stable for several hours, whereas transit across the endothelium takes less than 30 minutes. Further development is underway on the stability of bound polypeptides, carrier system and analysis of its transport characteristics in vitro and in vivo.

Midatech intends that its neuroscience research program will be partner funded and it is currently conducting feasibility studies into cytokine-based treatments for diseases such as Parkinson’s, Alzheimer’s, and multiple sclerosis as part of a Midatech-sponsored doctorate program with The Open University in the United Kingdom.

Sustained Release Technology: Polymer Microspheres

Overview. Midatech’s polymer microsphere platform is being developed to enable sustained release delivery solutions for peptide and small-molecule therapeutics, either standalone or bound to GNPs, through precise definition of the properties of polymer microparticles into which compounds or GNPs can be incorporated. Microspheres are small, spherical particles that can be utilized as a time release drug capsule. This addition complements Midatech’s oncology and endocrine franchises as well as the neuroscience-related focus in ophthalmology and uveitis, which is a rare medical condition affecting the eye, such rare conditions being known as “orphan diseases.”

Midatech’s sustained release micro-fluidic technology allows the precise formulation and characterization of the release of drugs over a predefined period, potentially ranging from a number of days to up to three months. The manufacturing technology also allows particles to be engineered with high precision and consistent size, alongside other key characteristics.

Midatech’s proprietary microsphere engineering platform can use a wide range of biomaterials to encapsulate drug candidates into micron sized particles (of diam eter ~25μm). Long-acting treatment is achieved using formulations of biodegradable polymers (including polylactides) to control the release of API over a period of three to six months following a single injection. Monodisperse microspheres may be readily i njected via minimally invasive needles as fine as 30 gauge.  In formulating small molecules, biopharmaceuticals and pegylated species, Midatech focuses on developing products that provide high drug loading, with minimal initial burst release, which is essential to the development of safe and effective therapies. This requires precise control over particle size, morphology and drug kinetics. This Midatech microsphere manufacturing enables emulsion-free synthesis with both product monodispersity and processing efficiency.

Markets of focus for such preparations include oncology, endocrinology and neuroscience, and also ophthalmology. Sustained release programs are underway in:

 
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Oncology and Endocrinology —a lead program in acromegaly, an endocrine disorder in which the body produces too much growth hormone, and a second program in carcinoid syndrome, an oncologic disorder of neuro-endocrine tumors; and

 
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Ophthalmology —in uveitis (inflammation of the eye).

Research and Development Activities. Midatech’s ongoing development program with regard to its sustained release technology is as follows:

 
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Acromegaly and Carcinoid Syndrome. Octreotide is an existing, immediate-release injection product used to decrease the production of growth hormone in people suffering acromegaly. It is also the most important form of treatment for carcinoid syndrome that occurs with carcinoid tumors (hormone producing cell tumors in the body). Midatech is looking to develop a sustained release version of this product, called “Q-Octreotide” that will compete with the market leader Sandostatin (marketed by Novartis). This project is undergoing a final formulation optimization and in vivo studies, and is expected to commence a Phase I pharmacokinetic trial in humans at the end of 2016. This will then lead to potential filings in 2017 and subsequent product sales in the United States and the European Union in 2018. Midatech will look to partner this program prior to commercialization.
 
 
 
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Uveitis. Uveitis is an inflammatory process affecting the iris, the ciliary body, the choroid layer or all or part of these structures of the eye. Significant vision loss can occur in up to 35% of children and adults with uveitis and total blindness as a result of uveitis accounts for 10% to 15% of all cases. Cyclosporine is an immunosuppressant compound that is marketed by Allergan for use of chronic dry eye syndromes. Current treatments for uveitis such as systemic or local immunosuppressants and corticosteroids have limited efficacy and poor side effect profile. A treatment that permanently controls inflammation, with a good short- and long-term safety profile, has yet to be developed. Midatech is pursuing in-house development of “Q-Cyclosporin” sustained release treatment for uveitis. This internally funded project is in its formulation phase and is anticipated to reach clinical stage in the second half of 2017. Clinical development is likely to be conducted through Phase Ib and Phase II studies, with marketing authorization filings potentially being approved in 2019.

Commercial Agreements, Strategic Partnerships and Collaborations
 
Midatech is currently collaborating with a number of biopharmaceutical companies, research institutes and universities on several of its development programs involving its core technologies.
 
Agreements, Partnerships and Collaboration with Midatech (or its Predecessor Entity)

Consejo Superior De Investigaciones Cientificas. In June 2002, Consejo Superior de Investigaciones Cientificas (“CSIC”) and Midatech Limited entered into a patent and know-how agreement, whereby CSIC granted Midatech Limited an exclusive license to exploit its patent and know-how rights in any field and anywhere in the world where those patents are registered, and to make applications to register such patents throughout the world in CSIC and Midatech Limited’s joint names, provided that CSIC may use the patents and know-how for the purpose of performing a research agreement between CSIC and Midatech Limited, to deal in products supplied to it by Midatech Limited and to perform research for its own non-commercial purposes. CSIC also assigned to Midatech Limited PCT Application Number PCT/GB01/04633. The agreement between the parties was amended on October 14, 2004 so as to specifically include magnetic nanoparticles in the scope of the license and rights granted to Midatech Limited. The patents and know-how are considered by Midatech to be core to its business.

Pursuant to the terms of the agreement, CSIC is obliged to reassign the patents into Midatech Limited’s sole name within 14 days of Midatech accomplishing one of the following:

 
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concluding a license agreement with a third party in respect of any of the intellectual property rights comprising the subject matter of the agreement;

 
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demonstrating therapeutic and/or diagnostic efficacy in an animal model derived from research sponsored by Midatech (or its affiliated companies);

 
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demonstration of a diagnostic product in Phase I clinical trials arising from intellectual property rights; or

 
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selling products made by Midatech, affiliated companies or licensees exploiting the intellectual property rights comprising the subject matter of the agreement which generate net sales royalties or net revenue royalties for CSIC.

As of the December 31, 2015, Midatech has accomplished all of the above milestones other than milestone related to the sale of products, and may therefore request that the relevant patents are assigned to it.
 

Midatech Limited is under an obligation to pay the following royalties to CSIC in prescribed circumstances following the commercialization of the relevant intellectual property:

Sales Amount
 
Royalty
 
Net Sales to €1 million
    6 %
Net Sales between €1 million and €9,999,999
    5 %
Net Sales between €10 million and €99,999,999
    4 %
Net Sales €100 million and above
    3 %

As of December 31, 2015, no royalties have been due or payable to CSIC.

Either party may terminate the agreement upon the insolvency of the other party or a material breach that is not remedied within 30 days’ notice.

Joint Venture with MonoSol. In December 2011, Midatech Limited and MonoSol formed a joint venture called Midasol Therapeutics to develop and commercialize certain pharmaceutical products for the treatment of diabetes in humans (the “Products”). Pursuant to the terms of the joint venture agreement, both parties contributed exclusive, royalty free, irrevocable, worldwide licenses to exploit, in any field of use, certain patents and related confidential know-how to Midasol Therapeutics.

Specifically, MonoSol granted to the Midasol Therapeutics joint venture, solely for the development and commercialization of the Products, an exclusive, royalty free, irrevocable, worldwide license (with the right to sublicense) to its share of any intellectual property jointly owned by MonoSol and Midatech, as well as certain additional intellectual property owned by MonoSol, as defined in the agreement. If a Product is developed that includes none of the intellectual property licensed by MonoSol, then no license is required.
 
Midatech Limited granted to the Midasol Therapeutics joint venture, solely for the development and commercialization of the Products, an exclusive, royalty free, irrevocable, worldwide license (with the right to sublicense) to its share of any intellectual property jointly owned by MonoSol and Midatech, as well as certain intellectual property owned by Midatech, as defined in the agreement. If a Product is developed that includes none of the intellectual property licensed by Midatech, then no license is required.

Midatech and MonoSol own Midasol and the Products in equal proportions and may grant sublicenses to one or more third parties. The grant of a license contained in the joint venture agreement includes a license to improvements which are non-exclusive but otherwise on the same terms as the existing licenses. The parties are entitled to royalties calculated by reference to a share of net returns for Products, Single IP Products, which are insulin based or GLP-1 based products that use the intellectual property of one party and are developed or commercialized by one party, and Independent Diabetes Field Products, which are any pharmaceutical product developed or commercialized by only one party that do not use the intellectual property of the other party. Each party is entitled to receive 50% of all net returns (calculated on a prescribed basis). In the event there is a single developing party, then such party receives 66% of the net returns for a Single IP product, or 75% for an Independent Diabetes Field Product.

Collaboration and License Agreement with MonoSol. In October 2008, Midatech Limited and MonoSol entered into a collaboration and license agreement to conduct research leading to development and commercialization of products which incorporated Midatech Limited’s nanoparticle technology and MonoSol’s self-dissolving thin film technology. To facilitate this research and product development, Midatech Limited granted MonoSol an exclusive, worldwide license to its intellectual property for the manufacture and development of candidate drugs in the defined field. This license is ongoing.
 

Pursuant to the terms of the collaboration and license agreement, each party granted the other party an exclusive license of its intellectual property for the purposes of the development of candidate drugs in the defined field. These licenses are ongoing and include any intellectual property resulting from Midatech Limited’s and MonoSol’s collaboration under the agreement, which is jointly owned. Under the terms of the agreement, Midatech and MidaSol will form a joint steering committee comprised of three members from each party. If any product resulting from the collaboration is commercialized, then the committee will determine, where applicable, the structure, strategy, branding and timetable for any commercialization, including whether the parties will enter into a third party licensing agreement. In the event that the parties cannot agree to jointly develop and commercialize a product through the committee, and the parties have exhausted any dispute resolution procedure set out in the agreement, then the party wishing to commercialize the product on its own may do so, as long as the non-commercializing party is entitled to reimbursement of its expenses in developing the product and receives a share of all net revenue and royalties from the product that is proportionate to the level of expense incurred by that party in developing the product, which in no event will be less than 5% of the royalties and 10% of other net revenue. The agreement subsists until the expiry of the last to expire of the patent rights of both parties covering Joint Owned IP or, if later, receipt of royalties or a third party license agreement providing for payment for the sale or distribution of products.

The collaboration and license agreement may be terminated by either party: (i) in the event of the other party’s insolvency, (ii) for a material breach of such agreement, (iii) in the event of a change in control or (iv) if no Product results from the collaboration under such agreement by October 2018.

Zuplenz Licensing Agreements. Pursuant to the terms of that certain Asset Purchase Agreement dated December  17, 2015, by and between Midatech and Galena, Midatech acquired all of Galena’s rights and obligations under that certain License and Supply Agreement (the “MonoSol License Agreement”) dated July 14, 2014, by and between Galena and MonoSol (as amended by that certain License and Supply Transfer Agreement dated December 16, 2015 (the “Amendment”)), as well as certain other assets and contracts related to Zuplenz® (ondansetron) Oral Soluble Film.  Pursuant to the terms of these agreements, Midatech has licensed from MonoSol all U.S. commercial rights to Zuplenz, a product approved by the FDA in adult patients for the prevention of highly and moderately emetogenic CINV, RINV, and PONV.  Zuplenz is also approved for pediatric patients with moderately emetogenic CINV.  Under the terms of the License and Supply Agreement, Midatech has also received all rights to the New Drug Application for Zuplenz and assumed responsibility for the commercialization of Zuplenz and for all regulatory and reporting matters in the U.S.  Additionally, Midatech has agreed that, until net sales of Zuplenz exceed a specified minimum amount or a competing product has been approved by the FDA and is placed into the market for sale, Midatech will maintain a specified minimum number of field sales force personnel on specified terms.  The minimum number of field sales force personnel was reduced pursuant to the Amendment.  Under the MonoSol License Agreement, MonoSol has the exclusive right to supply all of Midatech’s requirements for Zuplenz, subject to certain conditions.
 
Upon entry into the Asset Purchase Agreement, Midatech paid Galena $3,750,000.  Midatech also agreed to pay to Galena  up to an aggregate of $26 million, consisting of four one-time payments related to quarterly sales achieved in calendar years 2016 and 2017 and annual sales achieved from 2018 to 2022 exceeding specified target sales . As Midatech is now responsible for certain of Galena’s obligations under the MonoSol License Agreement, Midatech is required to pay to MonoSol $250,000 within 30 days after MonoSol’s payment of applicable fees relating to the notice of allowance by the United States Patent and Trademark Office of a U.S. patent with composition claims covering Zuplenz that extend beyond 2028, as well as a double-digit royalty on future net sales of Zuplenz.

The term of the MonoSol License Agreement is ten years, after which the license may be extended at Midatech’s option on an annual basis.  The agreement contains standard termination provisions allow either Midatech or MonoSol to terminate the agreement upon the other party’s material breach or bankruptcy.  Additionally, MonoSol may terminate the agreement if Midatech fails to make milestone or royalty payments or if Midatech fails to use commercially reasonable efforts to maintain the NDA.  Midatech may terminate the agreement for any reason.

Formulation Feasibility Agreement with Ophthotech Corporation. In August 2015, Midatech entered into a formulation feasibility agreement with Ophthotech Corporation (“Ophthotech”) to explore the feasibility of using Midatech’s Q Sphera microencapsulation technology, which employs a piezoelectric droplet generator to form polymeric microparticles that encapsulate a drug for sustained release, for sustained delivery formulations of select Ophthotech products for treatment of certain ocular diseases. Under the terms of the agreement, Ophthotech will provide Midatech with material in order for Midatech to conduct the analysis and to determine the viability of a commercial-scale manufacturing process.
 

Pursuant to the formulation feasibility agreement, Ophthotech will own all rights, title and interests in, and Midatech will assign any rights it may have in, any intellectual property that arises from the feasibility studies and is based on Ophthotech products or intellectual property. Additionally, Midatech will own all rights, title and interests in, and Ophthotech will assign any rights it may have in, any intellectual property that arises from the feasibility studies and is based on Midatech’s intellectual property.

The formulation feasibility agreement will remain in force until the completion of the feasibility studies set forth therein, unless terminated earlier in accordance with its terms. The agreement may be terminated by Ophthotech at any time with 30 days’ notice to Midatech. Midatech may terminate the agreement at any time with 30 days’ notice with respect to any of the feasibility studies if Midatech determines that it is unable to progress with such feasibility study.

Research Collaboration Agreement with Middlesex University. In February 2012, Midatech Limited entered into a research collaboration agreement with Middlesex University in London, England, whereby the parties agreed to research the treatment of cells with and without the addition of GNPs, with the aim of selectively killing tumor cells. The agreement expired in August 2013; however, the provisions in respect of the parties’ exploitation of intellectual property generated during the research project survive termination.

Middlesex University and Midatech Limited jointly own any intellectual property rights arising out of the work conducted under the agreement. Middlesex University granted to Midatech Limited an exclusive, fully paid-up, royalty free license (with the right to sub-license to any group company or any person working on behalf of Midatech Limited (or a group company)) for the purpose of carrying out that work to use the intellectual property arising out of the parties’ collaboration for any purpose relating to the exploitation of nanoparticles for therapeutic and imaging purposes anywhere in the world.

Research Collaboration Agreement with The Open University. In December 2012, Midatech Limited entered into a research and collaboration agreement with The Open University, a public research university in Milton Keynes, England, whereby the parties agreed to identify the most effective nanoparticle carrier that targets astrocytes (neurological cells that continuously tile the entire central nervous system), following which Midatech Limited is under an obligation to supply nanoparticles with a cargo attached, to demonstrate a mutually agreed therapeutic application. The agreement expired in September 2013. However, the parties’ exploitation of intellectual property generated during the research project survives termination. The agreement provides that Midatech Limited owns the intellectual property in all information, know-how, results, inventions, software and other intellectual property identified or first reduced to practice or writing in the course of the project, along with any improvements, modifications, adaptations or developments in any such intellectual property. The agreement also provided that The Open University would assign such intellectual property for any purpose in the field of the exploitation of nanoparticles for a prescribed purpose anywhere in the world.

Consortium Agreement. In June 2012, Midatech Limited entered into a consortium agreement with Cardiff University in Wales, Inserm-Transfert SA in Paris, France, Nanopass Technologies Ltd. in Israel, Leiden University Medical Center in the Netherlands, King’s College London in London, England, Institut National de la Sante et de aa Recherche Medicale, Marseille in Paris, France, and Linkopings University in Sweden. Pursuant to this agreement, the parties share and collaborate on various products and technology that is combined with the ultimate goal of integrating an antigen delivery system, to be used in clinical trials as a method of investigational medical product delivery.

All parties have joint ownership over any intellectual property rights which may arise. The portion of ownership is determined in proportion to a party’s contribution. Commercialization rights are to be determined on a fair and reasonable basis. Under the collaboration agreement, Midatech Limited contributed approximately €815,000 towards the consortium costs, of total requested European Union contribution of €6.0 million.

The project receives funds from the European Commission, which are distributed by a coordinator according to the consortium budget. The parties receive portions of this contribution, as determined by the consortium budget.
 

Agreements Related to Midatech Wales

Limited Supply Agreement. In July 2013, Q Chip entered into a supply agreement with Nova Laboratories Limited (“Nova”), pursuant to which Nova will supply Q Chip with large scale batches of its sustained release products. Nova specializes in the production of sterile products that can be given to humans. The term of this agreement is five years and thereafter unless and until terminated by either party giving not less than 3 months’ written notice.

Agreements Related to Midatech US

Helsinn Distribution and Licence Agreement.   On September 7, 2012, DARA entered into a Distribution and Licence Agreement (the “Licence Agreement”) with Helsinn Healthcare SA (“Helsinn”), pursuant to which Helsinn granted DARA an exclusive license to distribute, promote, market and sell Gelclair® for the management and relief of pain due to all approved indications in the United States.  Pursuant to the December 4, 2015 merger with DARA, Midatech US has assumed all of DARA’s rights and obligations under the Licence Agreement.  Under the terms of the Licence Agreement, if Helsinn develops Gelclair for an additional indication in the U.S., Midatech US will receive exclusive rights to distribute, promote, market and sell Gelclair for that indication.  Helsinn is responsible for the manufacturing and supply of Gelclair to Midatech based on mutually agreed upon forecasts and purchase orders from Midatech.

Under the terms of the Licence Agreement, Midatech US is required to make continuing royalty payments in the low double digits based on net revenues.  Midatech US must make an additional six-figure payment if certain cumulative sales target is reached.  In addition, if Gelclair is further developed for certain additional indications, Midatech must make an additional six-figure payment to Helsinn.

The Licence Agreement will remain in effect until September 7, 2022, unless terminated earlier or extended.  Either party may terminate the Licence Agreement at any time upon breach or bankruptcy of the other party.  In addition, Helsinn may choose to terminate the Licence Agreement if Midatech US fails to meet certain minimum annual sales requirements.

Alamo Master Service Agreement .  On October 25, 2013, DARA entered into a Master Service Agreement (the “Service Agreement”) with Alamo Pharma Services, Inc. (“Alamo”), pursuant to which Alamo provides Midatech US with a dedicated national sales team of 20 sales representatives to promote its commercial products. The initial term of the Service Agreement is for three years, subject to certain conditions, and the Service Agreement automatically renews in one year increments unless either party provides 60 days’ notice of termination. The Service Agreement contains standard termination provisions that allow either party to terminate the Service Agreement upon the other party’s material beach, bankruptcy or if the other party is debarred from federal contracting or is a “sanctioned entity,” as such term is described in the Service Agreement. In addition, Alamo may terminate if Midatech US fails to make timely payments.

In addition, DARA signed an agreement, exclusive to the oncology market, with Mission Pharmacal (“Mission”), Alamo’s parent company, to share in the costs and expenses of the sales force (the “Mission support payments”).  The Alamo sales team, in addition to promoting Midatech US’s products Soltamox (tamoxifen citrate) and Gelclair, is also promoting two Mission products: Ferralet® 90 (for anemia), and Aquoral® (for cancer related dry mouth).  Mission and Midatech US share the costs and expenses of the sales force with respect to the co-promotion.

Onxeo Commercialization Agreement.   On March 9, 2015, DARA entered into a commercialization agreement (the “Commercialization Agreement”) with Onxeo S.A. (“Onxeo”), giving DARA the exclusive, sublicensable, rights to distribute, promote, market and sell Oravig®, in the United States as well as the right to seek regulatory approval for Oravig in Canada with the resulting exclusive, sublicensable rights to distribute, promote, market and sell Oravig there. Onxeo also transferred to DARA the NDA for Oravig.  Oravig is the first and only orally dissolving buccal tablet approved for oral thrush, and it was launched in the United States in the fourth quarter of 2015. Midatech US has assumed DARA’s rights and obligations under the Commercialization Agreement.  Pursuant to the terms of the Commercialization Agreement and related supply agreement, Onxeo supplies Oravig to Midatech US.
 

Under the terms of the Commercialization Agreement, Midatech is required to make certain milestone payments based on Midatech US’s achievement of certain net sales of Oravig.  If Midatech enters into any agreement or sublicense with a third-party to commercialize or promote Oravig, Midatech will pay to Onxeo a double-digit royalty on any payments received from those third-parties above a set threshold.

Pursuant to the terms of the Commercialization Agreement, the Oravig license will continue until the agreement is terminated.  The agreement contains standard termination provisions that allow either party to terminate the agreement upon the other party’s material breach or bankruptcy.  Additionally, Onxeo may terminate the agreement if, subject to certain exceptions, Midatech US fails to make the milestone payments or if Midatech US does not make certain payments to Onxeo for supplying Oravig. Onxeo may also, subject to certain exceptions, terminate the agreement if Midatech US fails to use commercially reasonable efforts to execute its commercial responsibilities for the product and to maintain the NDA.

Commercial Operations

Midatech is in the process of building the commercial infrastructure necessary to effectively support the commercialization of its in-licensed products (including Oravig, Gelclair and Zuplenz) and its internal product candidates in the U.S. first and thereafter in Europe. The commercial infrastructure is expected to include a targeted sales force to establish relationships with a focused group of oncologists, oncology nurses, pharmacists and other medical professionals. In addition, Midatech US currently contracts with Alamo to provide a dedicated national sales team of 20 sales representatives. Midatech’s sales force will be supported by sales management, internal sales support, an internal marketing group and distribution support. Additionally, the sales and marketing teams will manage relationships with key accounts such as managed care organizations, group-purchasing organizations, hospital systems, oncology group networks, and government accounts. To develop the appropriate commercial infrastructure, Midatech will have to continue to invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that Midatech’s product candidates will be approved and Midatech could invest resources and then later learn that a particular product candidate is not being approved.

Research and Development

Midatech devotes significant resources to research and development, incurring £5.92 million, £5.40 million and £2.84 million of related expenses during the years ended December 31, 2015, 2014 and 2013.

Midatech has GNP research and development laboratories in Oxfordshire, United Kingdom and Bilbao Spain, as well as a polymer micro-sphere laboratory in Cardiff, Wales used for development purposes only of its sustained release technology.

The research and development staffing for these three sites comprises approximately 16 Ph.D. scientists, 19 MSc scientists and 17 BSc scientists.

Intellectual Property

Midatech’s success depends in large part on its ability to obtain and maintain proprietary protection for its products, product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing its proprietary rights. Midatech strives to protect the proprietary technology that it believes is important to its business by, among other methods, seeking and maintaining patents, where available, that are intended to cover its product, product candidates, compositions and formulations, their methods of use and processes for their manufacture and any other inventions that are commercially important to the development of Midatech’s business. Midatech also relies on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain its proprietary and competitive position.

Midatech has developed a strong intellectual property base globally, comprising patents, know-how, and trade secrets. Currently Midatech, including its subsidiaries, has 150 granted patents, 92 applications in process, in each case covering all major world markets, and over 34 separate Patent Families covering all major regions. Midatech continues to strengthen its patent portfolio by strategically submitting new patents and divisional patent applications based on its active research and development activities. Central to Midatech’s business are two platform intellectual property technologies that are designed to enable the targeted delivery, i.e. right place, and controlled sustained release, i.e. right time, of existing therapeutic drugs. These technologies have broad applications in multiple therapeutic areas and offer the potential to create multiple revenue opportunities:
 

 
·
Drug conjugate technology: Midatech’s core platform is a pioneering drug conjugate delivery system based on GNPs (a class of carbohydrate-coated gold nanoparticles) combined with approved drugs for targeted release at specific organs, cells or sites of disease; and

 
·
Sustained release technology: Midatech’s secondary platform (previously developed at Midatech Wales) involves the consistent and precise encapsulation of active drug compounds within polymer microspheres that are designed to release drugs and drug compounds into the body in a highly controlled manner over a prolonged period of time.

These technologies can be used alone or potentially in combination, that is, by encapsulating GNPs into polymer microspheres, the rate of release of the targeted therapeutic molecules could be controlled and substantially extended.

Patent rights have been granted in all the major world markets, including Europe, the United States and Japan (“Key Markets”). They confer a broad position of exclusivity for metal-core glycated-nanoparticles, including the Midatech’s GNPs. Midatech’s granted patents in its patent family 1 (expiring 2021) provide the foundation to the portfolio with product, process and use claims that encompass the GNPs used in all of Midatech’s major programs, including endocrinology, oncology and neuroscience. The granted patents and pending patent applications in over 30 patent families are owned solely by Midatech, co-owned with other parties or in-licensed to Midatech. These include:

 
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Endocrinology. Seven patent families, with expiration dates ranging from 2031 to 2035. These patent families include eight granted patents and 29 pending patent applications in Key Markets protecting products in Midatech’s pipeline for the treatment of diabetes, in particular, GNP-insulin, GNP-GLP-1 and GNP-combination (insulin and GLP-1).

 
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Oncology. Seven patent families, which have predicted expiration dates ranging from 2025 to 2036. These patent rights include 11 granted patents and 16 pending applications in Key Markets relating to products and methods for treating and imaging cancers. In addition to the radiative and immune-based therapies contemplated by many of these patent families, Midatech’s pipeline of GNP-drug conjugates for oncology benefits from protection by the foundation GNP patents of patent family 1.

 
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Neuroscience. An early patent family directed to use of GNPs for drug delivery across the blood brain barrier to the central nervous system. Midatech’s pipeline of GNP-drug conjugates for neuroscience also benefits from protection by the foundation GNP patents of patent family 1. The patent family includes seven pending applications.

Midatech also has in its portfolio several vaccine and infectious disease related patent families. These relate to GNPs for immune-based therapy and antibiotic-GNP conjugates. Midatech acquired through the Q Chip transaction patent applications directed to the apparatus and methods of “Q Sphera” technology, which employs a piezoelectric droplet generator to form polymeric microparticles that encapsulate a drug for sustained release. The combination of Midatech’s GNP technology with Midatech Wales’ sustained release technology has provided possibilities for new formulations of GNP-drug conjugates. Midatech’s GNPs, when encapsulated in Midatech Wales’ microparticles, enjoy patent protection conferred by the existing granted Midatech patents.

In addition, Midatech acquired a number of issued U.S. and foreign patents and pending patent applications in connection with its acquisition of DARA. Midatech’s patent rights categorized by individual drug programs is summarized below:

 
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KRN5500 . Four issued U.S. patents directed to spicamycin and derivatives thereof, including KRN5500, and their use in methods of decreasing or preventing pain; two pending U.S. patent applications and one pending U.S. provisional patent application directed to formulations of spicamycin derivatives, including KRN5500, and their use in methods of treating or preventing pain or treating liquid tumors; fourteen issued foreign patents and five  pending foreign applications directed to spicamycin and derivatives thereof, including  KRN5500, and their use in methods of decreasing or preventing pain.
 
 
 
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DB959 .  Three issued U.S. patents and one pending U.S. patent application with corresponding foreign patents and patent applications and one pending PCT application related to indane acetic acid derivative compounds and use thereof for treating type 2 diabetes, obesity, cardiovascular disease, liver disorders, Alzheimer’s disease, autoimmune disorders, psoriasis and other diseases, and the process and intermediates for preparing compounds.  The patents and patent applications related to DB959 were licensed by DARA to T3D Therapeutics, Inc. in 2013.

The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries, including the United States, the patent term is 20 years from the filing date of a non-provisional patent application. In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent.

The term of a U.S. patent that covers a drug, biological product or medical device approved pursuant to a pre-market approval may also be eligible for patent term extension when FDA approval is granted, provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length of time the drug is under regulatory review while the patent is in force. The Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the expiration date set for the patent. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be granted an extension and only those claims reading on the approved drug may be extended. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug, provided that statutory and regulatory requirements are met. Thus, in the future, if and when Midatech’s product candidates receive approval by the FDA or foreign regulatory authorities, it expects to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for each drug and other factors. The expiration dates of Midatech’s patents and patent applications referred to above are without regard to potential patent term extension or other market exclusivity that may be available to it.

In addition to patents, Midatech may rely, in some circumstances, on trade secrets to protect its technology and maintain its competitive position. However, trade secrets can be difficult to protect. Midatech seeks to protect its proprietary technology and processes, in part, by confidentiality agreements with its employees, corporate and scientific collaborators, consultants, scientific advisors, contractors and other third parties. Midatech also seeks to preserve the integrity and confidentiality of its data and trade secrets by maintaining physical security of its premises and physical and electronic security of our information technology systems.

Government Regulations

Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union and the United Kingdom, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

Review and Approval of Drugs in the United States

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) and implementing regulations. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice (“DOJ”) or other governmental entities.
 

An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

 
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completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice (“GLP”) regulations;

 
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submission to the FDA of an investigational new drug application, which must take effect before human clinical trials may begin;

 
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approval by an independent institutional review board (“IRB”), representing each clinical site before each;

 
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potential initiation of a clinical trial;
 
 
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performance of adequate and well-controlled human clinical trials in accordance with good clinical practices (“GCP”) to establish the safety and efficacy of the proposed drug product for each indication;

 
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preparation and submission to the FDA of a new drug application (“NDA”);

 
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review of the product by an FDA advisory committee, where appropriate or if applicable;

 
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satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

 
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satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;

 
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payment of user fees and securing FDA approval of the NDA; and

 
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compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies (“REMS”), and post-approval studies required by the FDA.

Preclinical Studies

Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance or API and the formulated drug or drug product, as well as  in vitro  and animal studies to assess the safety and activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted.

Human Clinical Trials in Support of an NDA

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the clinical trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
 

In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct a continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.gov website.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

 
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Phase I.   The drug is initially introduced into healthy human subjects or, in certain indications such as cancer, patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage.

 
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Phase II.   The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

 
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Phase III.   The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product.
 
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or  in vitro  testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase I, Phase II and Phase III clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.

Submission of an NDA to the FDA

Assuming successful completion of required clinical testing and other requirements, the results of the preclinical studies and clinical trials, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the drug product for one or more indications. Under federal law, the submission of most NDAs is additionally subject to an application user fee, currently exceeding $2.3 million, and the sponsor of an approved NDA is also subject to annual product and establishment user fees, currently exceeding $114,000 per product and $585,000 per establishment. These fees are typically increased annually.
 

The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74 th  day after the FDA’s receipt of the submission whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. Most such applications are meant to be reviewed within ten months from the date of filing, and most applications for “priority review” products are meant to be reviewed within six months of filing. The review process may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections cover all facilities associated with an NDA submission, including drug component manufacturing (such as active pharmaceutical ingredients), finished drug product manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.

In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. REMS can include medication guides, physician communication plans for healthcare professionals, and elements to assure safe use (“ETASU”). ETASU may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The FDA may require a REMS before approval or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the potential market and profitability of a product.

The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Fast Track, Breakthrough Therapy and Priority Review Designations

The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are fast track designation, breakthrough therapy designation and priority review designation.

Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a fast track product’s NDA before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last section of the NDA is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

In 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act (“FDASIA”). This law established a new regulatory scheme allowing for expedited review of products designated as “breakthrough therapies.” A product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.
 

The FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case- by-case basis, whether the proposed drug represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.
 
Accelerated Approval Pathway

The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a drug when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality (“IMM”), and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.

For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug.

The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. For example, accelerated approval has been used extensively in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large clinical trials to demonstrate a clinical or survival benefit.

The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase IV or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.
 
 
The FDA’s Decision on an NDA

On the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase IV clinical trials, be conducted to further assess the drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Post-Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

 
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

 
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fines, warning letters or holds on post-approval clinical trials;

 
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refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;
 
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product seizure or detention, or refusal to permit the import or export of products; or

 
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injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (“PDMA”), which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Abbreviated New Drug Applications for Generic Drugs

In 1984, with passage of the Hatch-Waxman amendments to the FDCA, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application (“ANDA”) to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference listed drug (“RLD”).

Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug.”

Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.

Under the Hatch-Waxman amendments, the FDA may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD has expired. The FDCA provides a period of five years of non-patent data exclusivity for a new drug containing a new chemical entity. In cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication.

Hatch-Waxman Patent Certification and the 30-Month Stay

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.
 

Specifically, the applicant must certify with respect to each patent that:
 
 
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the required patent information has not been filed;

 
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the listed patent has expired;

 
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the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or

 
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the listed patent is invalid, unenforceable or will not be infringed by the new product.

A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for which the ANDA applicant is not seeking approval).

If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent or a decision in the infringement case that is favorable to the ANDA applicant.

Pediatric Studies and Exclusivity

Under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the FDASIA in 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.

The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.
 

Orphan Drug Designation and Exclusivity

Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product). A company must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will be receiving orphan product exclusivity. Orphan product exclusivity means that the FDA may not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for the same product but for a different indication. If a drug or drug product designated as an orphan product ultimately receives marketing approval for an indication broader than what was designated in its orphan product application, it may not be entitled to exclusivity.

Patent Term Restoration and Extension

The term of a U.S. patent that covers a drug, biological product or medical device approved pursuant to a PMA may also be eligible for patent term extension when FDA approval is granted, provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length of time the drug is under regulatory review while the patent is in force. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration date set for the patent. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be granted an extension and only those claims reading on the approved drug may be extended. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug, provided that statutory and regulatory requirements are met. The U.S. Patent and Trade Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA.
 
Regulation Outside the United States

In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

Regulation and Marketing Authorization in the European Union

The process governing approval of medicinal products in the European Union follows essentially the same lines as in the United States and, likewise, generally involves satisfactorily completing each of the following:
 
 
 
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preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the applicable European Union Good Laboratory Practice regulations;

 
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submission to the relevant national authorities of a clinical trial application (“CTA”) which must be approved before human clinical trials may begin;

 
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performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication;

 
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submission to the relevant competent authorities of a marketing authorization application (“MAA”) which includes the data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labelling;

 
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satisfactory completion of an inspection by the relevant national authorities of the manufacturing facility or facilities, including those of third parties, at which the product is produced to assess compliance with strictly enforced current cGMP;

 
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potential audits of the non-clinical and clinical trial sites that generated the data in support of the MAA; and

 
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review and approval by the relevant competent authority of the MAA before any commercial marketing, sale or shipment of the product.

Preclinical Studies

Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in order to assess the potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of the compounds for testing must comply with the relevant European Union regulations and requirements. The results of the preclinical tests, together with relevant manufacturing information and analytical data, are submitted as part of the CTA.

Clinical Trial Approval

Requirements for the conduct of clinical trials in the European Union, including GCP, are implemented in the Clinical Trials Directive 2001/20/EC and the GCP Directive 2005/28/EC. Pursuant to Directive 2001/20/EC and Directive 2005/28/EC, as amended, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, approval must be obtained from the competent national authority of a European Union member state in which a study is planned to be conducted, or in multiple member states if the clinical trial is to be conducted in a number of member states. To this end, a CTA is submitted, which must be supported by an investigational medicinal product dossier (“IMPD”) and further supporting information prescribed by Directive 2001/20/EC and Directive 2005/28/EC and other applicable guidance documents. Furthermore, a clinical trial may only be started after a competent ethics committee has issued a favorable opinion on the clinical trial application in that country.

In April 2014, the European Union legislator passed the new Clinical Trials Regulation, (EU) No 536/2014, which will replace the current Clinical Trials Directive 2001/20/EC. To ensure that the rules for clinical trials are identical throughout the European Union, the new European Union clinical trials legislation was passed as a regulation that is directly applicable in all European Union member states. All clinical trials performed in the European Union are required to be conducted in accordance with the Clinical Trials Directive 2001/20/EC until the new Clinical Trials Regulation (EU) No 536/2014 becomes applicable, which will be no earlier than May 28, 2016.

The new Regulation (EU) No 536/2014 aims to simplify and streamline the approval of clinical trial in the European Union. The main characteristics of the regulation include:
 
 
 
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a streamlined application procedure via a single entry point, the European Union portal;

 
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a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures that will spare sponsors from submitting broadly identical information separately to various bodies and different member states;

 
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a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is assessed jointly by all member states concerned. Part II is assessed separately by each member state concerned;

 
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strictly defined deadlines for the assessment of clinical trial application; and

 
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the involvement of the ethics committees in the assessment procedure in accordance with the national law of the member state concerned but within the overall timelines defined by the Regulation (EU) No 536/2014.

Marketing Authorization

Authorization to market a product in the member states of the European Union proceeds under one of four procedures: a centralized authorization procedure, a mutual recognition procedure, a decentralized procedure or a national procedure.

Centralized Authorization Procedure

The centralized procedure enables applicants to obtain a marketing authorization that is valid in all European Union member states based on a single application. Certain medicinal products, including products developed by means of biotechnological processes, must undergo the centralized authorization procedure for marketing authorization, which, if granted by the European Commission, is automatically valid in all 28 European Union member states. The EMA and the European Commission administer this centralized authorization procedure pursuant to Regulation (EC) No 726/2004.

Pursuant to Regulation (EC) No 726/2004, this procedure is mandatory for:
 
 
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medicinal products developed by means of one of the following biotechnological processes:

 
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recombinant DNA technology;

 
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controlled expression of genes coding for biologically active proteins in prokaryotes and eukaryotes including transformed mammalian cells; and

 
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hybridoma and monoclonal antibody methods;

 
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advanced therapy medicinal products as defined in Article 2 of Regulation (EC) No. 1394/2007 on advanced therapy medicinal products;

 
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medicinal products for human use containing a new active substance that, on the date of effectiveness of this regulation, was not authorized in the European Union, and for which the therapeutic indication is the treatment of any of the following diseases:

 
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acquired immune deficiency syndrome (AIDS);

 
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cancer;

 
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neurodegenerative disorder;
 
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diabetes;

 
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auto-immune diseases and other immune dysfunctions; and

 
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viral diseases; and

 
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medicinal products that are designated as orphan medicinal products pursuant to Regulation (EC) No 141/2000.

The centralized authorization procedure is optional for other medicinal products if they contain a new active substance or if the applicant shows that the medicinal product concerned constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization is in the interest of patients in the European Union.

Administrative Procedure . Under the centralized authorization procedure, the EMA’s Committee for Human Medicinal Products (“CHMP”) serves as the scientific committee that renders opinions about the safety, efficacy and quality of medicinal products for human use on behalf of the EMA. The CHMP is composed of experts nominated by each member state’s national authority for medicinal products, with expert appointed to act as Rapporteur for the co-ordination of the evaluation with the possible assistance of a further member of the Committee acting as a Co-Rapporteur. After approval, the Rapporteur(s) continue to monitor the product throughout its life cycle. The CHMP has 210 days to adopt an opinion as to whether a marketing authorization should be granted. The process usually takes longer in case additional information is requested, which triggers clock-stops in the procedural timelines. The process is complex and involves extensive consultation with the regulatory authorities of member states and a number of experts. When an application is submitted for a marketing authorization in respect of a drug that is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation, the applicant may pursuant to Article 14(9) Regulation (EC) No 726/2004 request an accelerated assessment procedure. If the CHMP accepts such request, the time-limit of 210 days will be reduced to 150 days but it is possible that the CHMP can revert to the standard time-limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. Once the procedure is completed, a European Public Assessment Report (“EPAR”) is produced. If the opinion is negative, information is given as to the grounds on which this conclusion was reached. After the adoption of the CHMP opinion, a decision on the MAA must be adopted by the European Commission, after consulting the European Union member states, which in total can take more than 60 days.

Conditional Approval .   In specific circumstances, European Union legislation (Article 14(7) Regulation (EC) No 726/2004 and Regulation (EC) No 507/2006 on Conditional Marketing Authorisations for Medicinal Products for Human Use) enables applicants to obtain a conditional marketing authorization prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization. Such conditional approvals may be granted for product candidates (including medicines designated as orphan medicinal products) if (1) the risk-benefit balance of the product candidate is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) the product fulfills unmet medical needs and (4) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.

Marketing Authorization under Exceptional Circumstances .   Under Article 14(8) Regulation (EC) No 726/2004, products for which the applicant can demonstrate that comprehensive data (in line with the requirements laid down in Annex I of Directive 2001/83/EC, as amended) cannot be provided (due to specific reasons foreseen in the legislation) might be eligible for marketing authorization under exceptional circumstances. This type of authorization is reviewed annually to reassess the risk-benefit balance. The fulfillment of any specific procedures/obligations imposed as part of the marketing authorization under exceptional circumstances is aimed at the provision of information on the safe and effective use of the product and will normally not lead to the completion of a full dossier/approval.
 

Market Authorizations Granted by Authorities of European Union Member States

In general, if the centralized procedure is not followed, there are three alternative procedures as prescribed in Directive 2001/83/EC:
 
 
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The decentralized procedure allows applicants to file identical applications to several European Union member states and receive simultaneous national approvals based on the recognition by European Union member states of an assessment by a reference member state.

 
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The national procedure is only available for products intended to be authorized in a single European Union member state.

 
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A mutual recognition procedure similar to the decentralized procedure is available when a marketing authorization has already been obtained in at least one European Union member state.

A marketing authorization may be granted only to an applicant established in the European Union.

Pediatric Studies

Prior to obtaining a marketing authorization in the European Union, applicants have to demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan (“PIP”), covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, a class waiver, or a deferral for one or more of the measures included in the PIP. The respective requirements for all marketing authorization procedures are set forth in Regulation (EC) No 1901/2006, which is referred to as the Pediatric Regulation. This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized. The Pediatric Committee of the EMA (“PDCO”) may grant deferrals for some medicines, allowing a company to delay development of the medicine in children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when development of a medicine in children is not needed or is not appropriate, such as for diseases that only affect the elderly population.

Before a marketing authorization application can be filed, or an existing marketing authorization can be amended, the EMA determines that companies actually comply with the agreed studies and measures listed in each relevant PIP.

Periods of Authorization and Renewals

A marketing authorization is valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any authorization which is not followed by the actual placing of the drug on the European Union market (in case of centralized procedure) or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause).
 

Orphan Drug Designation and Exclusivity

The European Commission, following an evaluation by the EMA’s Committee for Orphan Medicinal Products, has designated SMT C1100 as an orphan medicinal product (EU orphan designation number: EU/3/08/591). Pursuant to Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000, the European Commission can grant such orphan medicinal product designation to products for which the sponsor can establish that it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 people in the European Union, or a life threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that sales of the drug in the European Union would generate a sufficient return to justify the necessary investment. In addition, the sponsor must establish that there is no other satisfactory method approved in the European Union of diagnosing, preventing or treating the condition, or if such a method exists, the proposed orphan drug will be of significant benefit to patients.

Orphan drug designation is not a marketing authorization. It is a designation that provides a number of benefits, including fee reductions, regulatory assistance, and the possibility to apply for a centralized European Union marketing authorization, as well as ten years of market exclusivity following a marketing authorization. During this market exclusivity period, neither the EMA, the European Commission nor the member states can accept an application or grant a marketing authorization for a ‘similar medicinal product. A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as those contained in an authorized orphan medicinal product and that is intended for the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may be reduced to six years if, at the end of the fifth year, it is established that the orphan designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. In addition, a competing similar medicinal product may in limited circumstances be authorized prior to the expiration of the market exclusivity period, including if it is shown to be safer, more effective or otherwise clinically superior to the already approved orphan drug. Furthermore, a product can lose orphan designation, and the related benefits, prior to us obtaining a marketing authorization if it is demonstrated that the orphan designation criteria are no longer met.

Regulatory Data Protection

European Union legislation also provides for a system of regulatory data and market exclusivity. According to Article 14(11) of Regulation (EC) No 726/2004, as amended, and Article 10(1) of Directive 2001/83/EC, as amended, upon receiving marketing authorization, new chemical entities approved on the basis of complete independent data package benefit from eight years of data exclusivity and an additional two years of market exclusivity. Data exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic (abbreviated) application. During the additional two-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic medicinal product can be marketed until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten 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. Even if a compound is considered to be a new chemical entity and the innovator is able to gain the period of data exclusivity, another company nevertheless could also market another version of the drug if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical test, preclinical tests and clinical trials. However, products designated as orphan medicinal products enjoy, upon receiving marketing authorization, a period of ten years of orphan market exclusivity. Depending upon the timing and duration of the European Union marketing authorization process, products may be eligible for up to five years’ supplementary protection certificates (“SPCs”), pursuant to Regulation (EC) No 469/2009. Such SPCs extend the rights under the basic patent for the drug.

Regulatory Requirements After a Marketing Authorization has been Obtained

If Midatech obtains authorization for a medicinal product in the European Union, it will be required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products:
 

Pharmacovigilance and other requirements

Midatech will, for example, have to comply with the European Union’s stringent pharmacovigilance or safety reporting rules, pursuant to which post-authorization studies and additional monitoring obligations can be imposed. Other requirements relate, for example, to the manufacturing of products and APIs in accordance with good manufacturing practice standards. European Union regulators may conduct inspections to verify our compliance with applicable requirements, and we will have to continue to expend time, money and effort to remain compliant. Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties in the European Union. Similarly, failure to comply with the European Union’s requirements regarding the protection of individual personal data can also lead to significant penalties and sanctions. Individual European Union member states may also impose various sanctions and penalties in case we do not comply with locally applicable requirements.

Manufacturing

The manufacturing of authorized drugs, for which a separate manufacturer’s license is mandatory, must be conducted in strict compliance with the EMA’s Good Manufacturing Practices (“GMP”) requirements and comparable requirements of other regulatory bodies in the European Union, which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. The EMA enforces its current GMP requirements through mandatory registration of facilities and inspections of those facilities. The EMA may have a coordinating role for these inspections while the responsibility for carrying them out rests with the member states competent authority under whose responsibility the manufacturer falls. Failure to comply with these requirements could interrupt supply and result in delays, unanticipated costs and lost revenues, and could subject the applicant to potential legal or regulatory action, including but not limited to warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil and criminal penalties.

Marketing and Promotion

The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the European Union under Directive 2001/83/EC. The applicable regulations aim to ensure that information provided by holders of marketing authorizations regarding their products is truthful, balanced and accurately reflects the safety and efficacy claims authorized by the EMA or by the competent authority of the authorizing member state. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.

Patent Term Extension

In order to compensate the patentee for delays in obtaining a marketing authorization for a patented product, a supplementary certificate, or SPC, may be granted extending the exclusivity period for that specific product by up to five years. Applications for SPCs must be made to the relevant patent office in each European Union member state and the granted certificates are valid only in the member state of grant. An application has to be made by the patent owner within six months of the first marketing authorization being granted in the European Union (assuming the patent in question has not expired, lapsed or been revoked) or within six months of the grant of the patent (if the marketing authorization is granted first). In the context of SPCs, the term “product” means the active ingredient or combination of active ingredients for a medicinal product and the term “patent” means a patent protecting such a product or a new manufacturing process or application for it. The duration of an SPC is calculated as the difference between the patent’s filing date and the date of the first marketing authorization, minus five years, subject to a maximum term of five years.

A six-month pediatric extension of an SPC may be obtained where the patentee has carried out an agreed pediatric investigation plan, the authorized product information includes information on the results of the studies and the product is authorized in all member states of the European Union.
 
 
Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Sales of products will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.

In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in product development.

In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of our drug candidate to currently available therapies (so called health technology assessment) in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, there can be considerably pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states, and parallel distribution (arbitrage between low-priced and high-priced member states), can further reduce prices. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.

Healthcare Law and Regulation

Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with third-party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations include the following:
 
 
 
·
the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;

 
·
the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
 
·
the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

 
·
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 
·
the federal false statements statute prohibits 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;

 
·
the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals and physician ownership and investment interests; and

 
·
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.

Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Competition

Midatech’s drug conjugate platform is among the latest generation of nanomedicine technology. Liposomes, an artificially prepared spherical vehicle composed of a lipid bilayer that can be used as vehicle for the administration of nutrients and drugs, followed by various polymeric nanoparticles, were the first nanotechnologies, and now inorganic nanoparticles like Midatech GNPs are emerging as the fastest growing sector within the nanomedicine market. The speed and nature of technological change means that physical science is always evolving and new competition and alternatives are always a possibility, however Midatech believes that it has established competitive advantage over its peers. As a result of the combination of its platform technology, intellectual property and proprietary know-how, Midatech has a protected position in the nanoparticle space which allows the potential for highly differentiated drugs serving high unmet needs like orphan oncology to be rapidly and independently manufactured and scaled.

Competitive Dynamics

Barriers to entry for competitors are high. The significant level of capital, scientific capabilities, and infrastructure required to achieve what Midatech has achieved to date may deter new entrants. A high degree of specialization and expertise in equivalent drug conjugate technology and relevant therapeutic areas is essential, which Midatech has built up over many years since inception. The power of suppliers is relatively low given Midatech’s manufacturing autonomy. The power of buyers—pharmaceutical companies—is important insofar as they may be partners for the commercialization and distribution of Midatech compounds such as its transbuccal insulin; however, in the oncology and ophthalmology programs the intention is that Midatech may commercialize these without the need for pharmaceutical partners. Even for large pharmaceutical companies, the know-how, manufacturing, and effort involved in getting Midatech to its current stage of business development would likely see them engage as partners rather than as competitors. Competitive pressures or substitutes for Midatech compounds like all biogenetic products come from traditional non-GNP therapeutic drugs, biosimilars, or new chemical entities. The growing trend of drug sales produced using biotechnology products suggests that the threat from traditional compounds as substitutes is potentially weak and shrinking. For example, in 2014, approximately 60% of approved molecular entities were specialty biotechnology drugs; however, by the end of the decade, 50% of drugs are expected to be biotechnology drugs. Biosimilars could become a competitor to nanotech drugs, however this is currently uncertain given the difficult pathway for regulatory approval and concerns of minor differences affecting drug efficacy and safety, as well as the significant cost involved in developing and approving biosimilars, which can run into hundreds of millions of dollars.
 
 
Competitive Technology

The main competing nanotechnologies are liposomes, polymers, carbon assemblies and other inorganic/metallic platforms. Carbon assemblies are not widely used in healthcare applications. Most nano activity has traditionally involved liposomes and polymers. More recently, the focus has moved to include inorganic nanoparticles using solid cores where Midatech is one of a few companies using gold. To the best of Midatech’s knowledge, it is the only company using non-colloidal gold (colloidal gold is defined as larger GNPs 10-15 nm and more, whereas Midatech’s core GNP construct is less than 2 nm) and is sufficiently progressed with the technology to be undertaking Phase II clinical trials. Midatech believes it is therefore well positioned versus the other technologies and companies providing a differentiated platform that imparts favorable characteristics in drug delivery, including targeting and mobility, solubility (for otherwise non soluble compounds), stability (of peptides), compatibility (inert and biocompatible) and highly controlled delivery and release in the cell.

Competitive Therapeutic Areas

With respect to diabetes, research on various alternative insulin delivery systems includes inhaled, oral, nasal, pulmonary, ocular, rectal, transdermal, and transbuccal routes of delivery. Inhaled insulin has as yet failed to show the anticipated success due to poor dosing flexibility, inconvenient administration, and safety concerns. Oral insulin remains a challenge because of susceptibility to hydrolytic degradation by acid and enzymes, low membrane permeability and low bioavailability. Midatech is focused on buccal administration, where it considers the GNP technology can successfully leverage the significant lymphatic and blood supply found in the buccal mucosa for the administration of GNP bound insulin.

Much of the historical and current focus and activity of the nanomedicine market is oncology. Within this domain, Midatech believes it is well positioned given the Group’s focus on selected orphan oncology applications where unmet needs persist, an accelerated regulatory process is possible and fewer companies compete (reflecting the challenges that need to be addressed). The other Midatech therapeutic areas (endocrinology, ophthalmology and neuroscience) are less active than oncology, which Midatech believes allows the advantages of GNP technology to be leveraged beyond the capabilities of other technologies, such as peptide stability, the ability to cross membranes (blood brain barrier, buccal mucosa) and excretability. Similarly, with the Midatech sustained release technology, the ability to address shortcomings of other controlled technologies such as burst, lag, release profile and consistency enables Midatech to pursue unmet opportunities such as sustained release octreotide, which to date has no generic competition despite being off patent for many years.

Competitive Companies

From a technology perspective, Midatech believes other companies using gold nanoparticle technologies include AuraSense Therapeutics, CytImmune Sciences, Inc., and Nanospectra Biosciences, Inc. Some companies use larger colloidal GNPs of 10 to 15nm or bigger, whereas Midatech uses non-colloidal gold cores smaller than 2nm.

Midatech’s Q Sphera technology for biodegradable sustained-release formulation takes a droplet-based approach that is based on a unique combination of microfluidics and 3-D printing. It enables next-generation microparticle engineering. Midatech believes other companies in the sustained release space include Critical Pharmaceuticals Ltd, Liquidia Technologies, Envisia Therapeutics, Graybug, Inc. and Nanomi B.V.
 

From a therapeutic perspective, Midatech believes other companies using non-injectable insulin include Mannkind Corporation, Oramed Pharmaceuticals, Inc. and Generex Biotechnology Corporation. Further, Afrezza, a form of inhaled insulin, is marketed by Mannkind Corporation and Sanofi S.A. Midatech is one of the few focused on buccal administration.

In oncology, research on nanomedicines over the past ten years has resulted in two FDA-approved antibody drug conjugates (brentuximab vedotin and trastuzumab emtansine), and four FDA-approved nanoparticle-based drug delivery platforms (Abraxane, Doxil (and its related variant, Thermodox), DaunoXome and Marqibo). With respect to these:
 
 
·
brentuximab vedotin, marketed as Adectris by Seattle Genetics and Millennium Pharmaceuticals/Takeda Oncology, is an antibody drug conjugate directed to the protein CD30, and is used to treat lymphoma;

 
·
trastuzumab emtansine, marketed as Kadcyla by Genentech Inc., a subsidiary of F. Hoffman-La Roche AG, is an antibody drug conjugate used for the treatment of metastatic breast cancer;

 
·
Abraxane, marketed by Celegene Corporation, consists of paclitaxel protein-bound particles for injectivable suspension, and is used for treating breast, lung, pancreatic and various other cancers;

 
·
Doxil, marketed by Janssen Products, is a doxorubicin HCI liposome injection used for ovarian cancer, kaposi sarcoma (a form of cancer that develops from the cells that line lymph or blood vessels) and multiple myeloma;

 
·
ThermoDox, a variant of Doxil, is marketed by Celsion Corporation, is a lyso-thermosensitive liposomal doxorubicin, and is used for treating breast and liver cancer. A variant of ThermoDox, called DaunXome, marketed by Galen Pharmaceuticals, is a liposomal daunoubicin, and is used to treat karposi sarcoma;

 
·
Marquibo, marketed by Spectrum Pharaceuticals, is a liposome-encapsulated vincristine, and is used to treat certain forms of leukemia.

There are also a number of drugs in development for various cancers at Phase I, Phase II and Phase III.

Midatech is pursuing orphan and rare oncology indications for both its GNP technology (in liver and brain cancer), as well as its sustained release technology, where therapies in development and on the market are limited. In neuroscience, Midatech is one of a few companies developing nanotechnology treatments with early stage programs focused on getting therapies across the BBB to treat diseases like Multiple Sclerosis, Alzheimer’s, and Parkinson’s disease.

With respect to the products Midatech commercializes, Gelclair competes with similarly categorized products, as well as a compounded, drug prescription product known as “Magic Mouthwash,” which is not marketed or sold by any pharmaceutical company, but rather often compounded by independent pharmacies. While Zuplenz and Soltamox have no specific competition, each of the ondansetron and tamoxifen markets are comprised of generic oral tablets. With respect to Oravig, the oral thrush market is currently serviced only by generic products.
 

Manufacturing

GNP Drug Conjugate Platform

Midatech has a manufacturing facility in Bilbao, Spain. The facility received cGMP certification and it is considered by Midatech to be unique in Europe as a cGMP certified manufacturing facility for solid core inorganic nanoparticles with sufficient capacity for producing clinical trial materials. Midatech established this state-of-the-art manufacturing facility in order to control the production and development of its GNP production. Midatech completed a significant upgrade to the site in September 2014, creating an integrated but separate unit for production of sterile candidate compounds within the GNP manufacturing facility in order to clinically test and evaluate candidate GNP-based cancer vaccines and GNP-chemotherapeutics. The facility extends over 750 square meters and includes a manufacturing suite, quality control laboratories, research laboratories, administrative space and has room for future expansion. The facility also enables Midatech to undertake research and preclinical activities. The facility is located near Bilbao’s international airport and a number of educational institutions in the region, from which Midatech benefits by way of post-graduate talent recruitment. The institutions include The Centre for Cooperative Research in Biomaterials in San Sebastian, Spain, which is focused on nanotechnology. The facility is also currently under evaluation by a US-based company seeking facilities to manufacture its products, which if successful could lead to a manufacturing contract that could potentially generate substantial revenues.

NanoFacturing

In December 2014, a consortium led by Midatech Pharma España SL (formerly named Midatech Biogune) was awarded €7.9 million (payable in installments) of grant funding from Horizon 2020, the European Union research and innovation program backed by the European Commission aimed at securing Europe’s global competitiveness. Of the total amount, €3.4 million is for the Midatech Group directly, with the balance going to consortium partners that will be involved in the scale-up of Midatech’s GNP manufacturing capacity. A consortium of nine partners was selected to receive the funding, including Midatech as lead proposer, for the proposal of “NanoFacturing—The Development of Medium- and Large-Scale Sustainable Manufacturing Process Platforms for Clinically Compliant Solid Core Nanopharmaceuticals.” The project had been evaluated by five independent experts and resulted in the consortium being selected to be awarded one of only two grants available out of 18 competing bids.

NanoFacturing is a scalable manufacturing platform to be developed by Midatech to support the wide range of nanopharmaceutical products being developed in Europe. It aims to address the small and medium scale needs of early phase clinical trials and niche applications, whilst also supporting the development of clinically compliant, sustainable large scale manufacturing processes capable of taking these products through Phase III trials into commercial manufacture and supply into large potential markets.

The project will focus on, inter alia, (i) creating cGMP pilot lines for up-scaling manufacturing; (ii) taking nanomaterials already successfully produced at proof-of-concept/milligram levels and facilitating their scale-up to kilogram quantities; and (iii) providing large-scale and cGMP production for clinical trials and nanomedicine production. The project will develop a GNP-based drug conjugate delivery system towards commercialization, including inter alia: (i) the synthetic processes, functional specifications and best practices to ensure efficient translation of agents from discovery through to first in man; and (ii) proof-of-concept studies and beyond to Phase III trials and commercialization, according to industrial and regulatory standards.

GNP Production

Midatech’s GNPs are manufactured in a proprietary process in which the nanoparticles self-assemble at room temperature. The main manufacturing unit was certified in February 2011 to operate to standards of cGMP and the newly refurbished facility has been licensed for the production of sterile material.  The facility houses two “Class C” clean rooms appropriate for manufacture of pharmaceutical grade material. The site has capacity for manufacturing enough material for clinical trials. The process is engineered to be easily scalable and so capacity can be expanded quickly if needed for larger trials and potential subsequent sales. The manufacturing facility gives Midatech complete control over GNP quality and supply. In addition to quality control issues, in-house development of manufacturing capabilities adds additional value to Midatech through revenue gained from retaining manufacturing rights. Midatech believes that other early stage nanotechnology companies outsource manufacturing to partners due to the complexity and relatively high cost involved with setting up a manufacturing operation. Midatech believes that although outsourcing lowers up-front investment, it gives away control over manufacturing, which can frequently lead to quality issues and supply constraints, especially when production needs to be scaled up.
 

While the manufacture of nanoparticles at Midatech Pharma España uses proprietary technology, the raw materials used for this manufacture are principally readily available chemical raw materials, which can be obtained from a number of standard suppliers. As routine practice, Midatech Pharma España uses two independent supply companies which are effectively interchangeable in order to mitigate the risk of failure in the supply chain. Specific ligand compounds are routinely supplied by a validated company in Spain under a Quality Agreement, but other companies in the United Kingdom have been used to synthesize these components on occasion, to ensure low risk of supply failure. Midatech Pharma España can also manufacture these components in house if necessary.

Manufacture of Sterile Injectables for Human Studies

In order to be in a position to clinically test and evaluate candidate GNP-based cancer vaccines and GNP-chemotherapeutics, which are administered by intravenous injection, clinical candidate compounds have to be produced under sterile conditions. To that end, Midatech completed a major upgrade of its infrastructure by integrating a separated sterile production unit within the cGMP manufacturing containment area. The Spanish regulatory authority has granted the required licenses for European compliance.

Sustained Release Platform

Manufacturing of cGMP grade materials within Midatech’s sustained release platform is currently outsourced to a third party, Nova Laboratories Ltd., referred to as Nova. Some investigational projects for third parties are carried out in Cardiff, Wales utilizing the ISO 9000 quality system. Nova operates a fully compliant pharmaceutical quality system and is licensed by the United Kingdom Medicines and Healthcare products Regulatory Agency as well as the United States Food and Drug Administration. Midatech’s five-year contract with Nova is due to expire in July 2018 and has no minimum order sizes, thereby ensuring that the initiation of each manufactured batch is solely within the control of Midatech.

Environmental, Health and Safety Matters

Midatech’s manufacturing facility is subject to extensive environmental, health and safety laws and regulations governing, among other things: the use, storage, registration, handling, emission and disposal of chemicals, waste materials and sewage; chemicals, air, water and ground contamination; air emissions and the cleanup of contaminated sites, including any contamination that results from spills due to Midatech’s failure to properly dispose of chemicals, waste materials and sewage.

These laws, regulations and permits could potentially require the expenditure by Midatech of significant amounts for compliance or remediation. If Midatech fails to comply with such laws, regulations or permits, it may be subject to fines and other civil, administrative or criminal sanctions, including the revocation of permits and licenses necessary to continue its business activities. In addition, Midatech may be required to pay damages or civil judgments in respect of third party claims, including those relating to personal injury (including exposure to hazardous substances its uses, stores, handles, transports, manufactures or disposes of), property damage or contribution claims. Some environmental, health and safety laws allow for strict, joint and several liability for remediation costs, regardless of comparative fault. Midatech may be identified as a responsible party under such laws. Such developments could have a material adverse effect on Midatech’s business, financial condition and results of operations.

In addition, laws and regulations relating to environmental, health and safety matters are often subject to change. In the event of any changes or new laws or regulations, Midatech could be subject to new compliance measures or to penalties for activities that were previously permitted.

Seasonality

Midatech’s business is not subject to seasonal patterns.

C. 
Organizational Structure

Midatech is organized under the laws of England and Wales. Midatech has three wholly owned subsidiaries, as well as several indirectly owned subsidiaries and joint ventures. The following table sets forth a description of the Group.
 
 
Subsidiaries
Country of Incorporation
Voting Interest
Subsidiaries of Midatech Pharma PLC
   
Midatech Pharma (Wales) Limited
England and Wales
100%
Midatech Limited
England and Wales
100%
Midatech Pharma US Inc.
United States (Delaware)
100%
Midatech Pharma Pty Limited
Australia
100%
Joint Ventures with Midatech Limited
   
MidaSol Therapeutics GP (1)
Cayman Islands
50%
Syntara LLC (2)(3)
United States (Delaware)
50%
Subsidiaries of Midatech Limited
   
Midatech Pharma Espana SL
Spain
100%
Midatech Andalucia SL (3)
Spain
100%
Pharmida AG (3)
Switzerland
100%
Subsidiaries of Midatech Pharma US Inc.
   
DARA Therapeutics, Inc.
United States (North Carolina)
100%

_______________
(1) 
Joint venture between Midatech Limited and MonoSol.
(2) 
Joint venture between Midatech Limited and Immunotope Inc. The percentage ownership of the entity is d etermined by reference to the partnership agreement and varies from time to time depending on capital committed. While 50% is the economic interest, Midatech Limited can currently direct 49% of the voting rights.
(3) 
Dormant entity or entities in the process of being wound-down.

D. 
Property, Plant and Equipment

Midatech’s headquarters, which houses its corporate offices, is located in Oxfordshire, United Kingdom. Midatech leases approximately 543 square meters (approximately 1,782 square feet) in this facility. Midatech’s lease for this space expires in February 2020.

Midatech also leases approximately 513 square meters (approximately 5,524 square feet) of a manufacturing facility in Bilbao, Spain, which lease expires in March 2021, and approximately 265 square meters (approximately 2,854 square feet) for a sustainable release research laboratory in Cardiff, Wales, which lease expires in April 2018.

As a result of acquiring DARA, Midatech has acquired a lease for 7,250 square feet (approximately 2,210 square meters) of office space in Raleigh, North Carolina. The lease expires on March 31, 2018.

Midatech believes that its facilities are sufficient to meet its current needs and that suitable additional space will be available as and when needed.

UNRESOLVED STAFF COMMENTS.

Not applicable.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

A. 
Operating Results.
 
 
This section begins with an overview of the principal factors and trends affecting Midatech’s results of operations. The overview is followed by a discussion of the components of Midatech’s income statement and Midatech’s critical accounting policies and estimates that it believes are important to understanding the assumptions and judgments reflected in its reported financial results. Midatech then presents an analysis of its results of operations for the last three fiscal years. Midatech does not report in segments.

 The following discussion should be read in conjunction with Midatech’s consolidated financial statements included in Item 18 of this annual report and “ Item 3.D — Key Information — Risk Factors .” Midatech’s financial statements and the financial information discussed below have been prepared in accordance with IFRS.

Principal Factors Affecting Results of Operations

Midatech considers the currency exchange rate between the British pound sterling, Euros and the U.S. dollar and certain other factors affecting the comparability of results of operations between periods as those most likely to influence its financial condition and results of operations.

Currency Exchange Rate

Midatech reports its financial results in British pounds sterling and its cash reserves are also largely denominated in British pounds sterling; however costs from its Spanish operation are denominated in Euros and costs from its United States operations are denominated in U.S. dollars, which subjects Midatech to currency exchange risks. A strong Euro or U.S. dollar against the British pound sterling would result in these Euros or U.S. dollars denominated costs needing a greater amount of cash to settle the cost.

During the periods set forth in the Midatech financial statements includes elsewhere in this annual report, the British pound sterling steadily appreciated against the Euro, such that by year end the Euro was close to a historic low; however, a strengthening Euro would result in higher British pound sterling equivalent costs being charged to the consolidated financial statements. The British pound remained more stable against the US dollar but a strengthening US dollar would again result in higher British pound sterling equivalent costs being charged to the consolidated financial statements however it would also result in higher revenue being recorded in the income statement. Certain other costs are denominated in other currencies, however, these are not considered material. At this time, Midatech does not consider the exposure sufficient to utilize derivatives to manage the forward exchange risk.

Initial Public Offering in the United Kingdom

Midatech’s financial and operating data for the periods ending December 31, 2015, 2014 and 2013 is not fully comparable due to the impact of Midatech’s initial public offering in the United Kingdom in 2014 and the costs associated with such transaction, the acquisitions of DARA and Zuplenz, together with the related NASDAQ listing in 2015.

Acquisition Transactions

On December 4, 2015, Midatech acquired Midatech US (formerly known as DARA). Operating results for Midatech US are only included in Midatech’s operating results for less than one month in fiscal 2015. Accordingly, the results for fiscal 2015 are not directly comparable to the results for fiscal 2014 and 2013.

On December 8, 2014, Midatech acquired Midatech Wales (formerly known as Q Chip Limited). Operating results for Midatech Wales are only included in Midatech’s operating results for less than one month in fiscal 2014. Accordingly, the results for fiscal 2014 are not directly comparable to the results for fiscal 2013.

Business Restructuring

Midatech’s financial and operating data for the periods ending December 31, 2014 and 2013 are not fully comparable due to the impact of a significant restructuring of Midatech’s operations during 2014. This saw a number of changes to headcount and organizational structure, as well as non-recurring costs associated with the reorganization.
 

Components of Income Statement Items

Operating Expenses

Midatech classifies its operating expenses into three categories: (i) research and development, (ii) distribution, sales and marketing and (iii) general and administration. These categories correspond to different functional areas within Midatech.

Midatech’s operating expenses primarily consist of personnel costs, contract research and development costs, professional service fees and depreciation. Personnel costs for each category of operating expenses include salaries, bonuses, social security, health insurance, other employee benefits and share-based compensation for personnel in that category. Midatech allocates share-based compensation expense resulting from the amortization of the fair value of options. Central overheads, such as rent, computer and other technology costs, are not allocated out to departments.

Research and Development Cost . Research and development costs consist of costs that are directly attributable to Midatech’s research and development programs associated with the products described above, including the cost of operating the Spanish manufacturing facility, which produces material exclusively for preclinical and clinical studies. This includes costs of third party CROs, research specialist professional services providers, chemicals and other consumables used in the research and manufacturing process, and payroll costs of staff directly assigned to the research and manufacturing operations.

Distribution Costs, Sales and Marketing . This category includes all costs directly associated with the commercial sales operation of the U.S. sales and marketing operation, including staff costs of sales personnel including sales management and marketing costs associated with the commercial business.

Administrative Costs . All other costs are classified as administrative costs. These primarily consist of personnel costs for our executive, finance, corporate development and administrative personnel, as well as legal, accounting and other professional service fees, other corporate expenses, merger and acquisition costs and initial public offering costs that are charged to the  consolidated statement of comprehensive income.
 
Finance Income

Finance income includes all interest receivable on cash deposits. In 2015, finance income also included a gain on an equity settled derivative financial liability. The Group assumed fully vested warrants and share options on the acquisition of DARA Biosciences, Inc. The number of ordinary shares to be issued when exercised is fixed, however the exercise prices are denominated in US Dollars, which is different from the functional currency of the parent company. Therefore, the warrants and share options are classified as equity settled derivative financial liabilities  in the consolidated statement of financial position with any gains or losses being recognized through finance income or finance expense in the consolidated statement of comprehensive income.
 
Finance Expense

Finance expenses include all interest payable on borrowings and loan instruments. In 2014, this included charges in respect of loan notes issued by Midatech Wales that were converted into equity as part of the acquisition by Midatech. Also included is interest chargeable on loans provided by Spanish governmental agencies to fund the construction and subsequent upgrade to Midatech’s Spanish manufacturing facility. In 2013, finance expenses also included interest chargeable on preference shares in Midatech Limited that have since been cancelled or converted into Ordinary Shares. Interest on these preference shares ceased to accrue in December 2013.

Taxation

Taxation represents tax credits receivable by Group companies in respect of qualifying research and development costs incurred and a non-material amount of income tax payable by a non-UK subsidiary.

Critical Accounting Estimates and Judgments

The preparation of Midatech’s consolidated financial statements requires Midatech to make estimates, assumptions and judgments that can have a significant impact on the reported amounts of assets and liabilities, revenue and expenses and related disclosure of contingent assets and liabilities, at the respective dates of its financial statements. Midatech bases its estimates, assumptions and judgments on historical experience and various other factors that it believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management evaluates estimates, assumptions and judgments on a regular basis and makes changes accordingly, and discusses critical accounting estimates with the Board of Directors.
 

The following are considered to be critical accounting policies because they are important to the portrayal of the financial condition or results of operations of the group and they require critical management estimates and judgments about matters that are uncertain.

Business Combinations

Midatech determines and allocates the purchase price of an acquired business to the assets acquired and liabilities assumed as of the business combination date. The purchase price allocation process requires the use of significant estimates and assumptions, including the estimated fair value of the acquired intangible assets.

While Midatech uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the date of acquisition, estimates and assumptions are inherently uncertain and subject to refinement. Examples of critical estimates in valuing certain of the intangible assets the Midatech Group have acquired or may acquire in the future include but are not limited to:

 
·
future expected cash flows from in-process research and development;

 
·
the fair value of the property, plant and equipment; and

 
·
discount rates.
 
Judgement has also been applied in the distinction of an asset purchase and business combination with regard to the Zuplenz acquisition. Judgement was applied in assessing the inputs, processes and outputs relevant to the acquisition to arrive at the conclusion that the treatment should be a business combination.
 
Impairment of Goodwill and Intangible Assets Not Yet Ready for Use

Goodwill and intangibles not yet ready for use are tested for impairment at the cash generating unit level on an annual basis at the year end and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a cash generating unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

Application of the goodwill impairment test requires judgment, including the identification of cash generating units, assignment of assets and liabilities to such units, assignment of goodwill to such units and determination of the fair value of a unit and for intangible assets not yet ready for use the fair value of the asset. The fair value of each cash generating unit or asset is estimated using the income approach, on a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the business, estimation of the useful life over which cash flows will occur and determination of our weighted-average cost of capital. The carrying value of Midatech’s goodwill was £12.5 million and £2.3 million as of December 31, 2015 and 2014, respectively, and intangibles not yet ready for use was £10.8 million as of December 31, 2015 and 2014. In addition, as of December 31, 2015, Midatech had intangibles relating to marketing and product rights of £18.1 million.

The estimates used to calculate the fair value of a cash generating unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each such unit. Based on the analysis performed, there was no impairment as of December 31, 2015 for goodwill, although there was an impairment of an in-process research and development intangible of £1.8 million in the year ended December 31, 2014, caused by the curtailment of an agreement with a commercial partner subsequent to acquisition. See Note 14 to Midatech’s audited consolidated financial statements for the year ended December 31, 2014 for more information.

Share-Based Payments

Midatech accounts for share-based payment transactions for employees in accordance with IFRS 2, Share- Based Payment , which requires it to measure the cost of employee services received in exchange for the options on Midatech’s ordinary shares, based on the fair value of the award on the grant date. Midatech selected the Black-Scholes-Merton option pricing model as the most appropriate method for determining the estimated fair value of its share-based awards without market conditions. For performance-based options that include vesting conditions relating to the market performance of its ordinary shares, a Monte Carlo pricing model was used in order to reflect the valuation impact of price hurdles that have to be met as conditions to vesting.
 

The resulting cost of an equity incentive award is recognized as expense over the requisite service period of the award, which is usually the vesting period. Compensation expense is recognized over the vesting period using the straight-line method and classified in the consolidated statements of comprehensive income.

The assumptions used for estimating fair value for share-based payment transactions are disclosed in Note 29 to Midatech’s audited consolidated financial statements for the year ended December 31, 2015 and are estimated as follows:

 
·
volatility is estimated based on the average annualized volatility of a number of publicly traded peer companies in the biotech sector;

 
·
the estimated life of the option is estimated to be until the first exercise period, which is typically the month after the option vests; and

 
·
the dividend return is estimated by reference to our historical dividend payments. Currently, this is estimated to be zero as no dividend has been paid in the prior periods.

See Note 29 to Midatech’s audited consolidated financial statements for the year ended December 31, 2015 for more information.
 
Income Taxes

Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

In 2015, there were £23.3 million, as opposed to £16.0 million in 2014, of gross unutilized tax losses carried forward. No deferred tax asset has been provided in respect of these losses as there was insufficient evidence to support their recoverability in future periods.

Intangible Asset Recognition

Research and development costs are charged to expense as incurred and are typically made up of salaries and benefits, clinical and preclinical activities, drug development and manufacturing costs, and third-party service fees, including for clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials, are periodically recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued expenses.

Recently Issued and Adopted Accounting Pronouncements

New Standards and Interpretations Not Yet Adopted
 
 
A number of new standards, amendments to standards, and interpretations are not effective for 2015, and therefore have not been applied in preparing Midatech’s financial statements.
 
IFRS 9, Financial Instruments (and subsequent amendments). On July 24, 2014 the IASB published the complete version of IFRS 9, Financial Instruments , which replaces most of the guidance in IAS 39. This includes amended guidance for the classification and measurement of financial assets by introducing a fair value through other comprehensive income category for certain debt instruments. It also contains a new impairment model which will result in earlier recognition of losses. No changes were introduced for the classification and measurement of financial liabilities, except for the recognition of changes in own credit risk in other comprehensive income for liabilities designated at fair value through profit or loss. IFRS 9 also includes a new hedging guidance. It will be effective for annual periods beginning on or after  January 1,  2018, it is subject to endorsement by the European Union.
 
IFRS 15, Revenue from Contracts with Customers. IFRS 15 specifies how and when a company will recognize revenue, as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles-based five-step model to be applied to all contracts with customers as follows:
 
 
•
identify the contract(s) with a customer;
 
 
•
identify the performance obligations in the contract;
 
 
•
determine the transaction price;
 
 
•
allocate the transaction price to the performance obligations in the contract; and
 
 
•
recognize revenue when (or as) the entity satisfies a performance obligation.
 
IFRS 15 was issued in May 2014 and replaces IAS 11—Construction Contracts ,   IAS 18—Revenue , IFRIC 13—Customer Loyalty Programmes , IFRIC 15—Agreements for the Construction of Real Estate , IFRIC 18—Transfers of Assets from Customers and SIC 31—Revenue—Barter Transactions involving Advertising Services . The IASB has voted to publish an Exposure Draft proposing a one-year deferral of the effective date of the revenue Standard to 1 January 1, 2018. The reason for deferring the effective date is that the IASB is planning to issue an Exposure Draft with proposed clarifications to the Standard, stemming from the joint Transition Resource Group meetings, as well as the desire to keep the effective date of the IASB’s and the FASB’s revenue Standards aligned. Earlier adoption is permitted. IFRS 15 is subject to endorsement by the European Union.
 
IFRS 16, Leases. On January 13, 2016, the IASB issued IFRS 16, Leases , which provides lease accounting guidance. Under the new guidance, lessees will be required to present right-of-use assets and lease liabilities on the statement of financial position. At the lease commencement date, a lessee is required to recognize a lease liability, which is the lessee’s discounted obligation to make lease payments arising from a lease, as well as a right of use asset, representing the lessee’s right to use, or control the use of, a specified asset for the lease term. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019, it is subject to endorsement by the European Union.   Earlier application is permitted for entities that apply IFRS 15, Revenue from Contracts with Customers , at or before the initial application of IFRS 16.
 
Midatech is currently reviewing the impact of the above-mentioned Standards and Interpretations and is yet to conclude on whether any such standards will have a significant impact on the financial statements of the Group in the year of initial application.
 
The other standards, interpretations and amendments issued by the IASB (of which some still subject to endorsement by the European Union), but not yet effective are not expected to have a material impact on the Group’s future consolidated financial statements.
  
Results of Operations

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

The following table summarizes Midatech’s consolidated results of operations for the years ended December 31, 2015 and 2014:

 
   
Year Ended
December 31,
 
   
2015
   
2014
 
   
(£ in thousands)
 
             
Revenue
    775       25  
Grant revenue
    600       132  
Total revenue
    1,375       157  
Cost of Sales     (70 )     ---  
Gross Profits     1,305       157  
Research and development costs
    (5,920 )     (5,439 )
Distribution costs, sales and marketing
    (374 )     ---  
Administrative costs
    (7,929 )     (4,665 )
Loss from operations
    (12,918 )     (9,947 )
Finance income
    1,691       8  
Finance expense
    (5 )     (161 )
Loss before tax
    (11,232 )     (10,100 )
Taxation
    (1,133 )     1,018  
Loss after tax attributable to the owners of the parent
    (10,099 )     (9,082 )

 
Total Revenue . For the year ended December 31, 2015, Midatech generated consolidated total revenues of £1.38 million, as compared to £0.16 million in 2014, an increase of 763%.

The increase in revenue for 2015 was primarily due to the addition of product sales from Midatech US, as well as revenue generated from research collaborations with third party pharmaceutical and biotech organizations and a significant increase in revenue from milestone based grants. For 2014, revenue was only generated from research collaborations with third party pharmaceutical and biotech organizations and income from milestone based grants

Research and Development Costs . Midatech incurred research and development costs of £5.92 million in 2015, as opposed to £5.44 million in 2014, an increase of £0.48 million, or 9%, primarily due to increased activity across the range of Midatech’s research programs.

Administrative Costs . For the year ended December 31, 2015, Midatech’s administrative costs were £7.93 million, as opposed to £4.67 million in 2014, an increase of £3.26 million, or 70%, primarily as a result of:

 
·
the listing of the Depositary Shares on NASDAQ and the registration of such Depositary Shares, and the Ordinary Shares underlying them, with the SEC, the acquisition of Midatech US and Zuplenz and related professional fees of £2.99 million; and
 
 
·
an increase in the average number of staff employed by the Group from 36 to 74, as opposed to 38 in 2014, and the associated increase in payroll costs by £1.45 million to £4.52 million in the aggregate, as opposed to £3.07 million in the aggregate in 2014.

Finance Income . Included within finance income for 2015 was a gain of £1.64 million arising on the revaluation of an equity settled derivative financial liability due to the reduction in the share price between the date of acquisition of Midatech Pharma US, Inc. and the year end. This impacts the fair value of the consideration for the share options and warrants assumed. The balance of finance income in 2015 and for all prior years related to interest received on bank deposits.

Finance Expense . Finance expenses of £0.005 million were charged in 2015, as compared to £0.16 million in 2014, a decrease of £0.155 million, or 97%. The majority of the 2014 charge related to interest on loan notes in Midatech Wales that were converted into equity prior to the acquisition by Midatech.

Taxation . Midatech is a recipient of tax credits from Her Majesty’s Revenue and Customs in respect of certain qualifying research and development expenditures. The amount receivable in 2015 was £1.20 million, as compared to £0.84 million in 2014, reflecting a higher level of qualifying activity in 2015.
 
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
 
 
The following table summarizes Midatech’s consolidated results of operations for the years ended December 31, 2014 and 2013:

   
Year Ended
December 31,
 
   
2014
   
2013
 
   
(£ in thousands)
 
Revenue
    157       147  
Research and development costs
    (5,439 )     (2,840 )
Administrative costs
    (4,665 )     (1,806 )
Loss from operations
    (9,947 )     (4,499 )
Finance income
    8       1  
Finance expense
    (161 )     (385 )
Loss before tax
    (10,100 )     (4,883 )
Taxation
    1,018       799  
Loss after tax attributable to the owners of the parent
    (9,082 )     (4,084 )


Revenue . For the year ended December 31, 2014, Midatech generated consolidated revenues of £0.16 million, as compared to £0.15 million in 2013, an increase of 6.7%.

Revenue for 2014 and 2013 was generated from research collaborations with third party pharmaceutical and biotech organizations and income from milestone based grants.

Research and Development Costs . Midatech incurred research and development costs of £5.44 million in 2014, as opposed to £2.84 million in 2013, an increase of £2.60 million, or 91.5%, primarily due to the impairment of £1.8 million of IPRD as a result of the curtailment of one of Midatech Wales’ contracts and due to preclinical and toxilogical testing and preparation for Midatech’s clinical Phase II studies that commenced in 2015. Activities undertaken during 2014 were largely focused on the development of the oral insulin therapy enabling needle-free insulin delivery, which was developed via its joint venture with MonoSol RX LLC.

Administrative Costs . For the year ended December 31, 2014, Midatech’s administrative costs were £4.67 million, as opposed to £1.81 million in 2013, an increase of £2.86 million, or 158%, primarily as a result of:

 
·
the incurrence of professional fees and other costs of £1.05 million in connection with Midatech’s initial public offering and admission onto AIM;

 
·
the acquisition of Midatech Wales and related professional fees of £0.17 million; and

 
·
an increase in the average number of staff employed by 9 to 38, as opposed to 29 in 2013, and the associated increase in payroll costs £0.47m to £2.81 million in the aggregate, as opposed to £2.34 million in the aggregate in 2013 (which includes 23 days of Midatech Wales’ payroll costs).

Finance Expense . Finance expenses of £0.16 million were charged in 2014, as compared to £0.39 million in 2013, a decrease of £0.23 million, or 59.0%, primarily due to the cessation of an accrual of share interest on Midatech Limited’s preference shares in December 2013. The charge in 2013 represented interest charged on loans from Spanish governmental agencies to Midatech Pharma España SL and interest on preference share equity in Midatech Limited.
 

Taxation . Midatech is a recipient of tax credits from Her Majesty’s Revenue and Customs in respect of certain qualifying research and development expenditures. The amount receivable in 2014 was £0.84 million, as compared to £0.80 million in 2013.
  
B. 
Liquidity and Capital Resources.

Overview

From its inception, Midatech’s operations have been financed primarily from the net proceeds of private share placings and, in December 2014, from its initial public offering and associated listing on AIM which raised £32.0 million, before costs and expenses.
 
Until Midatech’s acquisition of the rights to Zuplenz and DARA in December 2015, the Group did not have any products in the market and its revenue was derived from ad hoc research collaborations with partner organizations and grant income. The Group has yet to generate a profit and, excluding share issues, cash flows have been consistently negative from the date of incorporation.
 
Midatech’s commercialization strategy is to grow the Midatech US operations, such that it becomes profitable and cash generative, and can partially support the rest of the Group. Following this, Midatech will target revenue from sales of its own product candidates; however this is not expected to materialize until approximately 2018, at the earliest. Midatech is subject to all of the risks incident in the development of new biopharmaceutical products, and it may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect its business.
 
The Group has incurred significant net losses and has had negative cash flows from operations during each period from inception through December 31, 2015, and had an accumulated deficit of £39.15 million at December 31, 2015. Management expects operating losses and negative cash flows to continue for the foreseeable future. In the event that current cash reserves are found to be insufficient to achieve breakeven, then additional funding will have to be obtained, which may include public or private equity or debt offerings. Additional capital may not be available on reasonable terms, if at all. If Midatech is unable to raise additional capital in sufficient amounts or on terms acceptable to it, it may have to significantly delay, scale back or discontinue the development or commercialization of its product candidates or its acquisition strategy. If Midatech raises additional funds through the issuance of additional debt or equity securities, it could result in dilution to Midatech’s existing stockholders, increased fixed payment obligations and these securities may have rights senior to those of Ordinary Shares (including the Depositary Shares) and could contain covenants that would restrict Midatech’s operations and potentially impair its competitiveness, such as limitations on its ability to incur additional debt, limitations on its ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact its ability to conduct its business. Any of these events could significantly harm Midatech’s business, financial condition and prospects.

Cash Flows

The following table presents a summary of the primary sources and uses of cash for the years ended December 31, 2015, 2014 and 2013:
 
 
   
Year ended December 31,
 
   
2015
   
2014
   
2013
 
   
(£’s in thousands)
 
Cash used in operating activities
    (12,421 )     (5,455 )     (4,436 )
Cash used in investing activities
    (1,533 )     (907 )     (50 )
Cash (used) provided by financing activities
    (219 )     34,300       6,740  
Net (decrease) increase in cash and equivalents
    (14,173 )     27,938       2,254  

 
Operating Activities

Cash flows from Operating Activities before Changes in Working Capital . Net cash outflow from operating activities before changes in working capital was £12.18 million at December 31, 2015, as opposed to £7.48 million during the same period in 2014. This increased cash outflow of £4.70 million, or 63%, is primarily a result of the increased expenditures during the period, including the costs of the Midatech US acquisition and the acquisition of Zuplenz.

Net cash outflow from operating activities before changes in working capital was £7.48 million for the year ended in 2014, as opposed to £4.25 million in 2013. This increased cash outflow of £3.23 million was primarily a result of the increased expenditures during the year, including the costs of Midatech’s initial public offering.

Working Capital . The following table sets forth Midatech’s working capital for the years ended December 31, 2015, 2015 and 2013:
 

   
Year Ended
December 31,
 
   
2015
   
2014
   
2013
 
   
(£’s in thousands)
 
Current Assets
    20,331       31,628       4,095  
Current Liabilities
    9,099       2,832       2,295  
Working Capital
    11,232       28,796       1,800  
 

At December 31, 2015, the Group had cash reserves of £16.18 million. Midatech believes that its existing cash and cash equivalents will be sufficient to fund its cash flow requirements through at least the next twelve months. Midatech believes that it will eventually generate sufficient income from royalties, license deals and product revenue to become self-funding. Midatech believes that the funds raised will assist in its development by:

 
·
providing resources to accelerate research and development on Midatech’s target products and key collaborations, and to further develop its technology platforms;

 
·
enhancing Midatech’s profile among current and prospective partners, suppliers and customers;

 
·
providing the potential to access capital to fund Midatech’s future growth and support further any potential expansion plans;

 
·
providing a platform for potential further acquisitions of companies, products and intellectual property; and;

 
·
providing opportunities for Midatech to attract, retain and incentivize high caliber employees.
 
 
Midatech’s forecast of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the timing of clinical trials. Midatech has based this estimate on assumptions that may prove to be wrong, and it could utilize its available capital resources sooner than it currently expects. If Midatech lacks sufficient capital to expand its operations or otherwise capitalize on its business opportunities, its business, financial condition and results of operations could be materially adversely affected.

Taxes Received . Research and development tax credits of £0.65 million were received in 2015, as opposed to £0.79 million in 2014. This related to claims submitted in the prior financial year.

Research and development tax credits of £0.79 million were received in 2014, as opposed to £0.59 million in 2013. This related to claims submitted in the prior financial year.

Investing Activities

Purchase of property, plant and equipment .  Purchase of property, plant and equipment of £0.92 million occurred in the year ended December 31, 2015, compared to £1.03 million for the same period in 2014. This was related to the opening of new, combined head office and laboratory facilities in Abingdon, England, investing in a significant upgrade to the Group’s information technology infrastructure, further investment into the Group’s manufacturing facility in Bilbao, Spain, and the purchase of new equipment for the Cardiff facility working on Midatech’s sustained release programs.

Purchase of property, plant and equipment of £1.03 million occurred in the year ended December 31, 2014, as opposed to £0.05 million in the prior year, as the Group continued to invest in its research and development and manufacturing capabilities. Of the increased expenditure of £0.98 million, £0.79 million was spent upgrading Midatech’s Spanish manufacturing facility, making it capable of sterile manufacture, necessary for use in planned human clinical studies.

Cash Equivalents Acquired with Subsidiary

As part of the DARA acquisition, Midatech acquired $3.45 million in cash (approximately £2.28 million) in 2015, as opposed to £0.12 million in cash in 2014, due to the acquisition of Midatech Wales. There were no such acquisitions in 2013.

Financing Activities

Repayment of Borrowings. In 2015, Midatech repaid borrowings of £0.17 million, as opposed to £0.35 million in 2014, relating to loans received from Spanish governmental agencies used to fund the acquisition of, and fit-out of, Midatech’s Spanish manufacturing facility.

In 2014, Midatech repaid borrowings of £0.35 million, as opposed to £0.20 million in 2013, relating to loans received from Spanish governmental agencies used to fund the acquisition of, and fit-out of, Midatech’s Spanish manufacturing facility.

Issue of Convertible Debt. There was no issue of convertible debt in 2015 or 2014, however £1.25 million was raised in 2013 from the issue of convertible debt. This related to convertible loan notes issued in the early part of 2013 that were converted into equity in the latter part of the year.

Loan Finance Raised. For the year ended December 31, 2015, Midatech did not raise any loan finance.

In 2014, Midatech, through its Spanish subsidiary, raised £0.89 million in further tranches of loan finance from Spanish governmental agencies to fund the purchase of equipment used in the sterile upgrade of the manufacturing facility. There was no corresponding amount for 2013.

Shares Issued Net of Costs. For the year ended December 31, 2015, Midatech issued 5,422,028 Ordinary Shares, primarily related to its acquisition of DARA, which did not result in any net cash inflows.
 
 
Midatech raised £33.85 million for the year ended December 31, 2014, as opposed to £5.80 million in 2013, in cash, largely from two share placings during the year.

The first share placing was a rights issue undertaken between May and July 2014 that raised £3.1 million, net of costs and expenses. The second was the placing of shares through the initial public offering and admission to AIM, which raised £29.8 million, net of costs and expenses. The balance of funds raised of £1.0 million was raised through the redemption of a preference share liability that was immediately reinvested in new Ordinary Shares.

Cash and Cash Equivalents at Year End

Cash decreased for the year ended December 31, 2015 by £14.17 million, compared to an increase of £27.94 million in the corresponding period in 2014. As at December 31, 2015 Midatech had cash and cash equivalents of £16.18 million compared to £30.33 million as at December 31, 2014. This cash was used to fund the operations of Midatech in 2015, as well as also fund the acquisition of Zuplenz.

The cash raised from the initial public offering is the primary reason for the net cash inflow for the year ended December 31, 2014, of £27.94 million, as opposed to inflow of £2.25 million in 2013, and the year-end cash balance of £30.33 million, as opposed to £2.39 million in 2013

C. 
Research and Development, Patents and Licenses, Etc.

For the years ended December 31, 2015, 2014 and 2013, Midatech’s research and development expenses were £5.92 million, £5.44 million and £2.84 million, respectively. For more information regarding Midatech’s research and development program, see “ Item 4. Information on the Company—B. Business Overview—Research and Development .”

D. 
Trend Information.

Other than as disclosed elsewhere in this annual report, Midatech is not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on its revenues, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E. 
Off-Balance Sheet Arrangements.

As of December 31, 2015, Midatech did not have any off-balance sheet arrangements as defined in Item 5.E.2 of Form 20 - F.

F. 
Tabular Disclosure of Contractual Obligations.

The following table summarizes Midatech’s contractual obligations as of December 31, 2015:

   
Payments due by period
 
   
Total
   
Less than 1 year
   
1-3 years
   
3-5 years
   
More than 5 years
 
   
(£’s in thousands)
 
Long-Term Debt Obligations
    31       9       9       13       --  
Capital Lease Obligations
    161       78       27       56       --  
Government Research Loans
    1,716       388       195       644       755  
Total
    1,908       475       231       713       755  
 
 
Long-Term Debt Obligations relates to bank loans secured to fund the purchase of capital equipment used in Midatech’s Spanish manufacturing facility.
 
Capital Lease Obligations are related to a single finance lease for analytical equipment used in Midatech’s Spanish manufacturing facility.
 
Government Research Loans relates to five tranches of government loans received by Midatech Pharma España SL for the finance of research, technical innovation and the construction of their laboratory. The loans are term loans which carry sub-market interest rates, and they are repayable over periods through to 2022. The loans carry default interest rates in the event of scheduled repayments not being met. The loans are discounted at a market rate of interest with the credit being classified as a grant within deferred revenue. The deferred grant revenue is released to the consolidated statement of comprehensive income within research and development costs in the period to which the expenditure is recognized.
 
G. 
Safe Harbor
 
Certain of the statements included in this annual report and the documents incorporated herein by reference may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For Midatech’s cautionary statement on the forward-looking statements in this annual report, see “Cautionary Note Regarding Forward-Looking Statements on page 4 of this annual report.
 
 
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
 
A. 
Directors and Senior Management
 
The following table sets forth certain information about Midatech’s directors and executive officers. The professional address of each of the directors is care of Midatech Pharma PLC, 65 Innovation Drive, Milton Park, Abingdon, Oxfordshire, OX14 4RQ, United Kingdom.
 
Name
 
Age at
12/31/2015
 
Position/Title
Directors:
       
James Phillips, MB, ChB (3) (4)
 
53
 
Chief Executive Officer, Director
Nicholas Robbins-Cherry (3) (4)
 
46
 
Chief Financial Officer, Director
Rolf Stahel (2) (3)
 
71
 
Non-Executive Chairman of the Board of Directors
John Johnston (1) (3) (4)
 
57
 
Non-Executive Director
Michele Luzi (2) (3)
 
58
 
Non-Executive Director
Pavlo (Paul) Protopapa (1) (3)
 
49
 
Non-Executive Director
Simon Turton, Ph.D. (1) (2) (3)
 
48
 
Senior Independent Non-Executive Director
Sijmen (Simon) de Vries, M.D. (2) (3)
 
56
 
Non-Executive Director
Executive Officers (5):
       
Craig Cook, MB, BCH
 
49
 
Chief Operating Officer and Chief Medical Officer
David Benharris (6)
 
51
 
President, Midatech Pharma US, Inc.
__________________________
(1)
Audit Committee member
(2)
Remuneration Committee member
(3)
Nominations Committee member
(4)
Disclosure Committee member
(5)
Other than directors who are also executive officers.
(6)
Mr. Benharris was not an executive officer of Midatech in 2015. Mr. Benharris was appointed as President of Midatech Pharma US, Inc. in January 2016.
 
A description of the business experience and present position of each director and executive officer is provided below.
 
Directors
 
James Phillips, MB, ChB has served as Midatech’s Chief Executive Officer (including his service to Midatech’s predecessor entity) since May 2013. Dr. Phillips was appointed to Midatech Limited’s Board of Directors on May 1, 2013 and has served as a member of Midatech’s Board of Directors since September 12, 2014. Since 2009, Dr. Phillips has also served as a consultant to Phillips Pharma Enterprise Ltd. Prior to joining Midatech, Dr. Phillips founded and led Talisker Pharma Ltd., a specialty pharmaceutical company, in 2004 which was acquired by EUSA Pharma Inc. in 2006. Following the acquisition, Dr. Phillips was appointed President of Europe and Senior Vice President, Corporate Development, until its acquisition in 2012 by Jazz Pharmaceuticals. Dr. Phillips initially held senior positions at Johnson & Johnson (NYSE: JNJ) and Novartis International AG (NYSE: NVS), where he was in clinical and business development and was a director of the $1.3 billion arthritis, bone, gastrointestinal, hematology and infectious diseases business unit and a member of the company’s Clinical Leadership Team. Prior to that, Dr. Phillips was the interim Chief Executive Officer of Bone Medical Ltd. (ASX: BNE). Dr. Phillips, a physician by training, is currently a non-executive director of Herantis Pharma PLC (NASDAQ First North: HRTIS) and, Insense Ltd, a private company, and, until joining Midatech, was Chairman of the Board of Directors of Prosonix Limited.
 
 
Nicholas Robbins-Cherry has served as Midatech’s Chief Financial Officer (including his service to Midatech’s predecessor entity) since February 2014. Mr. Robbins-Cherry was appointed to Midatech’s Board of Directors on September 12, 2014. Prior to joining Midatech, Mr. Robbins-Cherry served as the Financing Director of The Marketing Practice Limited from January 2013 to January 2014. Prior to that, he served in various positions, most recently as the Finance Director, of CACI Limited from February 2008 to January 2013. Mr. Robbins-Cherry is a chartered accountant and has a Masters of Business Administration and Bachelors of Science in Pharmacology.
 
Rolf Stahel has served as Midatech’s Non-Executive Chairman of the Board and director (including his service to Midatech’s predecessor entity) since March 1, 2014. Since 2009, Mr. Stahel has served as the Non-Executive Chairman and a director of Connexios Sciences Pvt. Ltd., and since April 2014 he has served as Non-Executive Chairman and a director of Ergomed Group plc (AIM: ERGO). Mr. Stahel is also the sole shareholder and founder of Chesyl Pharma Ltd. from March 1994 to March 2003, Mr. Stahel served as the Chief Executive Officer and a director of Shire Pharmaceuticals Group plc (NASDAQ: SHPG). Prior to that time, Mr. Stahel worked in various positions with Wellcome plc, the predecessor to GlaxoSmithKline plc (NYSE: GSK), for 27 years. Mr. Stahel has previously served as the Non-Executive Chairman of EUSA, Cosmos Pharmaceuticals SpA (SIX: COPN), PowderMed Ltd. and Newron Pharmaceuticals SpA (SWX: NWRN).
 
John Johnston has served as a non-executive member of Midatech’s Board of Director since November 13, 2014. Since December 2014, Mr. Johnston has served as the Non-Executive Chairman of Constellation Healthcare Technologies, Inc. (AIM: CHT). Mr. Johnston served as Managing Director of Institutional Sales at Nomura Code Securities Ltd, a brokerage company, from April 2011 to April 2013. From 2008 to 2011, he served as Director of Sales and Trading at the investment bank Seymour Pierce. In 2003, Mr. Johnston founded Revera Asset Management, where he oversaw an investment trust, a unit trust and a hedge fund, which he ran until 2007. From 2000 to 2003, Mr. Johnston served as Director of Small Companies Technology and Venture Capital Trusts at Legg Mason (NYSE: LM). Prior to that, he served as Head of Small Companies with Murray Johnstone from 1998 to 2000. From 1992 to 1997, Mr. Johnston was Head of Small Companies at Scottish Amicable, before spending a year at Ivory & Sime, again as Head of Small Companies from 1997 to 1998. Mr. Johnston began his investment career at the Royal Bank of Scotland in 1981, working in the Trustee and Investment department, before moving to General Accident in 1985, holding the position of Head of Retail Funds before his move to Scottish Amicable. Mr. Johnston is currently non-executive director of MaxCyte, Inc. (AIM: MXCT), Flowgroup plc and Action Hotels.
 
Michele Luzi has served as a non-executive member of Midatech’s Board of Directors since August 2010 (including his service to Midatech’s predecessor entity). Mr. Luzi has served in various capacities since 1990 with Bain & Company, Inc., most recently as a partner. Prior to joining Bain & Company, Mr. Luzi worked in international management positions with Pirelli and also worked in Agusta and with the Italian Trade Commission. Mr. Luzi previously served as director of Bain & Company Global between 2006 and 2009. Mr. Luzi also serves on the board of a number of private companies.
 
Pavlo (Paul) Protopapa has served as a non-executive member of Midatech’s Board of Director since December 2013 (including his service to Midatech’s predecessor entity). Mr. Protopapa is the founder and Managing Partner of Ippon Capital, a private equity company based in Geneva, Switzerland. Mr. Protopapa founded Ippon Capital in 2013. Since 2013, Mr. Protopapa has served as the Chairman and Chief Executive Officer of Spacecode Holdings, a technology provider in healthcare and luxury goods, which he co-founded in 2005 with Dr. Cook. Prior to that, Mr. Protopapa served as Chief Financial Officer of the Steinmetz Diamond Group from 1997 to 2012. Mr. Protopapa also serves as a director of Socure Inc., a SaaS-based internet security company.
 
Simon Turton, Ph.D . has served as a non-executive member of Midatech’s Board of Director since December 2014. Dr. Turton served as Chairman of Q Chip and OpsiRx Pharmaceuticals from March 2014 until their acquisition by Midatech in December 2014. Since January 2015, he has served as the Managing Director of Gensmile Limited. In 2002, Dr. Turton joined Warburg Pincus’, most recently as head of healthcare investing activities in Europe, until June 2011. Dr. Turton has previously served on the board of Archimedes Pharma, Eurand, ProStrakan Group plc and Tornier, Inc. (NASDAQ: TRNX). Dr. Turton has a Masters of Business Administration from INSEAD and a Ph.D. in pharmacy from the University of London.
 
 
Sijmen (Simon) de Vries, M.D . has served as a non-executive member of Midatech’s Board of Director since October 2004 (including his service to Midatech’s predecessor entity). Dr. de Vries has served as of the Chief Executive Officer of Pharming Group NV (Euronext: PHARM) since November 2008. Prior to that, Dr. de Vries served as Chief Executive Officer of 4-Antibody and Morphochem AG. Prior to this he worked at Novartis Pharma, Novartis Ophthalmics and at SmithKline Beecham Pharmaceuticals Plc, where he held senior business and commercial positions. Dr. de Vries holds an M.D. degree from the University of Amsterdam and a Masters of Business Administration in General Management from Ashridge Management College (UK).
 
Executive Officers
 
Craig Cook, MB, BCH has served as Midatech’s Chief Operating Officer and Chief Medical Officer (including Midatech’s predecessor entity) since January 2014. From November 2011 to May 2014, Dr. Cook served as a partner at Sedation Solutions. In addition, from May 2005 to December 2013, he served as Chief Executive Officer of Spacecode Technologies, which he co-founded in 2005 with Mr. Protopapa. Dr. Cook has previously held executive positions at Eli Lilly and Company (NYSE: LLY), Novartis International AG (NYSE: NVS), Johnson and Johnson (NYSE: JNJ) and Serono Biotech. He is also a founder of Swisscare Health residential care group in the United Kingdom. Dr. Cook is also a lead advisor for Ippon Capital SA’s life sciences practice. Dr. Cook is a qualified physician and has a Bachelors of Science in pharmacology, a diploma in anesthesiology and a Masters of Business Administration.
 
David Benharris has served as the President of Midatech US since January 2016. Prior to that, he served as DARA’s Senior Vice President, Commercial and Business Operations from March 2015 to December 2015, and prior to that served as DARA’s Vice President, Marketing and Business Development from January 2012 to February 2015. Before joining DARA, Mr. Benharris was a Business Director with EMD Serono, Inc. from August 2009 to January 2012.
 
For the biographical information of Dr. James Phillips, Midatech’s Chief Executive Officer, and Nicholas Robbins-Cherry, Midatech’s Chief Financial Officer, see “ Item 6.A. Directors and Senior Management—Directors ” beginning on page 97.
 
B. 
Compensation
 
The following section reports the remuneration to Midatech’s Board of Directors and describes its compensation policies and actual compensation for its executive officers as well as our use of equity incentives.
 
Compensation of Non-Executive Directors
 
The non-executive directors of Midatech (consisting of Messrs. Stahel, Johnston, Luzi, Protopapa, Turton and de Vries) receive a fee for their services as a director, which is approved by the Midatech Board of Directors, giving due consideration to the time commitment and responsibilities of their roles and of current market rates for comparable organizations and appointments. Non-executive directors are reimbursed for travelling and other incidental expenses incurred on Midatech business in accordance with the Midatech expenses policy.
 
The following table summarizes the compensation paid to Midatech’s non-employee directors during 2015 (including for any service on any subsidiary of Midatech).  
 
 
Name
 
Fees Earned or
Paid in Cash
(£)(1)
 
All Other 
Compensation
(£)
 
Total
(£)
Rolf Stahel
 
50,000
 
57,640 (2)
 
107,640   
Jeff Brown (4)  
—
  46,667 (5)        46,667 (5)
John Johnston
 
      35,000  (3)
 
—
 
35,000
Michele Luzi
 
35,000
 
—
 
35,000
Pavlo Protopapa
 
35,000
 
—
 
35,000
Simon Turton
 
      35,000 (3)
 
—
 
35,000
Sijmen de Vries
 
35,000
 
—
 
35,000
      ______________
 
(1)
Includes annual fees, committee chairpersonship fees and meeting fees.
 
(2)
Includes fees paid to Mr. Stahel in connection with a consultancy agreement with Chesyl Pharma Limited, a company wholly owned by Mr. Stahel.
 
(3)
A portion of the compensation paid to each of Messrs. Johnston and Turton for their services on the Board are paid to consulting firms owned by each of Mr. Johnston and Mr. Turton, respectively; however, Midatech does not receive any consulting services from Messrs. Johnston or Turton or their respective consulting firms.
 
(4)
Mr. Brown resigned from the Midatech Board of Directors effective April 30, 2015.
 
(5)
Includes pro rated annual fees and meeting fees, as well as £35,000 paid upon Mr. Brown’s resignation.
 
The following table sets forth, as of December 31, 2015, the aggregate number of option awards held by Midatech’s current non-executive directors:

 
Name
  Number of Options  
Grant Date
 
Exercise Price
per Share
(£)
 
Expiration
Date
Michele Luzi (1)
    18,796 (2)  
 4/20/2012
  4.19  
 4/20/2022
Sijmen de Vries
    3,000 (2)  
12/31/2008
  1.425  
12/31/2018
      4,000 (2)  
 4/20/2012
  4.19  
 4/20/2022
      10,000 (3)  
 6/30/2014
  0.075  
 6/30/2024
___________
(1)
Stock options held by Mr. Luzi were granted as part of a prior investment in Midatech Limited in 2011 and not for service as a non-executive director.
(2)
The stock options are fully vested.
(3)
The stock options vest in the following installments: (i) 50% of the stock options vest when Midatech’s share price is £5.31 share, (ii) a further 25% of the stock options vest when Midatech’s share price is £13.72 a share and (iii) the remaining 25% of the stock options vest when Midatech’s share price is £18.86 a share.
 
All stock options were granted with an exercise price at or above market value on the date of grant. The majority of stock options only vest when Midatech’s share price achieves certain targets. Otherwise, the main vesting condition of all stock options is that the non-executive director remain employed with Midatech as at the date of exercise or continues to provide consultancy services as at the date of exercise.
 
Deed of Indemnity
 
Under a deed poll declared by Midatech on August 5, 2015 (the “Deed of Indemnity”), the Midatech Board of Directors and its Company Secretary are indemnified against costs and liabilities incurred in connection with their office, other than any liability owed by such person to Midatech itself (or any of its associated entities) and other than indemnification for liabilities in certain circumstances, which are prohibited by virtue of the United Kingdom Companies Act 2006. The Deed of Indemnity provides that a director may also be lent sums to finance any relevant defense costs, provided that, in the event such proceedings involve criminal or civil matters in which the person is convicted or has a judgment made against him or her, then such loan must be repaid.
 
 
Letters of Appointment
 
Each non-executive director (other than Mr. Stahel) has been appointed to serve on the Midatech Board of Directors pursuant to a letter of appointment. The initial term of appointment for each director is three years, unless terminated earlier by either party upon one month’s prior notice or in accordance with the terms of the letters of appointment. The appointment is subject to Midatech’s articles of association, and is subject to confirmation at any annual general meeting of Midatech.
 
Each director (other than Mr. Stahel) is paid an annual fee of £35,000, which covers all duties, including committee service or service on the board of a Midatech subsidiary, with the exception of committee chairmanships and certain additional responsibilities, such as taking on the role of senior independent director. In addition, Midatech reimburses each director for reasonable and properly documented expenses incurred in performing their duties. Midatech also grants each director a deed of indemnity against certain liabilities that may be incurred as a result of their service, to the extent permitted by the United Kingdom Companies Act 2006.
 
In addition, without the prior written consent of Midatech, for a period of six months following a director ’ s termination from service, such director will not, whether as a principal or agent and whether alone or jointly with, or as a director, manager, partner, shareholder, employee consultant of, any other person, carry on or be engaged, concerned or interested in any business which is similar to or which is (or intends to be) in competition with any business being carried on by Midatech or any subsidiary, as applicable.
 
Rolf Stahel Letter of Appointment
 
Pursuant to a term of appointment dated April 15, 2014, as amended on December 2, 2014 (the “Stahel Appointment Agreement”), Rolf Stahel was appointed non-executive Chairman of Midatech’s Board of Directors, with effect from March 1, 2014. The initial term of appointment for Mr. Stahel expired on February 28, 2015, and expires annually on the anniversary of such date unless Mr. Stahel is reelected by the directors of Midatech. In addition, his appointment may be terminated:
 
 
·
by either party giving at least three months prior written notice;
 
 
·
by the Midatech Board of Directors reasonably determining that Mr. Stahel’s acceptance of any other employment, engagement, appointment, interest or involvement with any business or person competes or conflicts with his appointment and would result in a serious conflict of interest or Mr. Stahel reasonably determines such interest would result in a serious conflict of interest, and Mr. Stahel accepts such employment, engagement, appointment, interest or involvement; or
 
 
·
in accordance with Midatech’s articles of association or applicable law.
  
Pursuant to the terms of the Stahel Appointment Agreement, Mr. Stahel is paid an annual fee of £50,000. Mr. Stahel is also paid an additional fee of £50,000 under a consultancy agreement. Mr. Stahel is entitled to additional payments depending upon the amount of time he devotes to Midatech under the Consultancy Agreement. See “ Item 7.B. Related Party Transactions—Agreement with Chesyl Pharma Limited .” In addition, in connection with the execution of the Stahel Appointment Agreement, Midatech granted to Mr. Stahel options to acquire shares of Ordinary Shares at a price of 0.075p per share, which he subsequently exercised (all per share and share amounts for Mr. Stahel have been adjusted to account for a two-for-one stock split of Ordinary Shares on November 28, 2014). Mr. Stahel, in accepting the options, agreed to certain restrictions on any disposal and voting rights of such shares. With regard to the Ordinary Shares held by Mr. Stahel, the following restrictions apply:
 
 
 
·
as to 244,880 shares held by Mr. Stahel (the “Relevant Shares”), Mr. Stahel is under an obligation not to dispose of such shares, subject to one-eighth of the Relevant Shares being released from such disposal restriction on each of the first, second, third and fourth anniversaries of March 1, 2014 (the “Appointment Date”), such that by the fourth anniversary of the Appointment Date, 50% of the Relevant Shares will no longer be subject to any disposal restriction. In the event of termination by Midatech of Mr. Stahel’s appointment as a non-executive director in certain circumstances for cause prior to such fourth anniversary, any shares which remain restricted will be able to be purchased by Midatech at a price of £0.075p per ordinary share, referred to as the Relevant Price. On the occurrence of other circumstances of termination, the restrictions shall cease to apply to the Relevant Shares. As of March 1, 2016, approximately 61,220 of the Relevant Shares are no longer subject to any disposal restrictions;
 
 
·
as to 122,440 of such Relevant Shares held by Mr. Stahel, Mr. Stahel has agreed not to dispose of such shares until the first to occur of (i) Midatech achieving a target measured by the average market capitalization of Midatech on any public market over a 30 day period of at least £184.7 million, provided the Share Increase Hurdle (as defined below) applies or a trade sale or a valuation carried out by an independent valuer (collectively, the “Trigger Events”); or (ii) the fourth anniversary of the Appointment Date, whereupon Midatech has the right to repurchase such shares at the Relevant Price if no Trigger Event at or above such value has occurred;
 
 
·
as to a further 122,440 of such Relevant Shares held by Mr. Stahel, Mr. Stahel has agreed not to dispose of such shares until the first to occur of (i) Midatech achieving a target measured by the average capitalization of Midatech on any public market over a 30 day period of at least £240.9 million provided the Share Increase Hurdle applies on a Trigger Event; or (ii) the fourth anniversary of the Appointment Date, whereupon Midatech has the right to repurchase such shares at the Relevant Price if no Trigger Event at or above such value has occurred; and
 
 
·
the Relevant Shares that are subject to disposal restrictions are unable to be voted upon by Mr. Stahel during the periods described above in respect of the amount of such shares which remain under restriction.
 
For purposes of this section, the “Share Increase Hurdle” means in increase in the mid-market price of an Ordinary Share to at least £3.33. The remaining Midatech shares owned by Mr. Stahel are not subject to any restrictions.
 
In addition, Midatech also is obligated to take out a reasonable directors and officers liability insurance policy, which applies to Mr. Stahel. Midatech also agreed to reimburse Mr. Stahel for reasonable and documented expenses accrued in the course of performing his duties and provide him with up to £7,500 in professional advice in connection with performing his duties. The Stahel Appointment Agreement includes provisions related to the non-disclosure of information and assignment of inventions. Among other things, these provisions obligate Mr. Stahel from disclosing any of Midatech’s proprietary and confidential information received during the course of employment and to assign to Midatech any inventions conceived or developed during the course of their employment.
 
In the event Midatech terminates the agreement with Mr. Stahel at any time in accordance with the provisions of the articles of association or applicable laws, Mr. Stahel will have no right to damages or compensation if he:
 
 
·
is found guilty of any misconduct, gross negligence or dishonesty or acts in a manner which is materially adverse to the interests of Midatech;
 
 
·
commits any serious or repeated breach or non-observance of his obligations to Midatech;
 
 
·
becomes bankrupt, has an interim order made against him under the United Kingdom Insolvency Act 1986 or makes any composition or enters into any deed of arrangement with his creditors or the equivalent of any of these under any other jurisdictions;
 
 
 
·
becomes of unsound mind, becomes a patient under any statute relating to mental health or is unable, due to any accident, illness or injury, to undertake his duties for Midatech for a period of more than six consecutive months;
 
 
·
is convicted of a criminal offense (other than a motoring offense for which a non-custodial penalty is imposed);
 
 
·
is disqualified by law or an order of a court of competent jurisdiction from holding office; or
 
 
·
has failed to submit his resignation as Chairman and as a director of Midatech when required to so pursuant to the terms of the Stahel Appointment Agreement.
 
In the event Midatech terminates the agreement at any time with immediate effect (other than pursuant to the preceding paragraph), Midatech will pay to Mr. Stahel all fees which are due to him for the following 12 months.
 
Mr. Stahel may resign from his positions at any time if Midatech (i) is guilty of any gross negligence which affects him or any dishonesty towards or concerning him or (ii) becomes insolvent, makes any composition or enters into any deed of arrangement with its creditors or the equivalent. If Mr. Stahel resigns due to these reasons, Midatech will pay to Mr. Stahel all fees which are due to him for the following 12 months. Further, in the event that Mr. Stahel is unable, due to an accident, illness or injury, to undertake his duties for Midatech in accordance with the terms of the Stahel Appointment Agreement for a period of more than six consecutive months, he may resign at any time without any rights to damages or compensation. Mr. Stahel is also required to resign in connection with the Midatech Board of Directors determination that his acceptance of any other employment, engagement, appointment, interest or involvement with any business or person competes or conflicts with his appointment and would result in a serious conflict of interest or Mr. Stahel reasonably determines such interest would result in a serious conflict of interest, and Mr. Stahel accepts such employment, engagement, appointment, interest or involvement, without any rights to damages or compensation. If Mr. Stahel resigns for any other reason, he must provide 12 months written notice.
 
Compensation of Executive Officers
 
The following table summarizes the compensation paid to Midatech’s executive officers during 2015 (including for any service on any subsidiary of Midatech).
 
Name
 
Salary
(£)
 
Bonus
(1)(£)
 
All Other
Compensation
(2)(£)
 
Total
(£)
Dr. James Phillips
 
242,880
 
104,125
 
30,284
 
377,289
Chief Executive Officer
               
Nicholas Robbins-Cherry
 
145,696
 
38,360
 
15,583
 
199,639
Chief Financial Officer
               
All executive officers as a group (3 persons) (3)
 
597,617
 
191,985
 
65,784
 
855,386
_____________
 
(1)
The Service Agreements also include a bonus target for Dr. Phillips and Mr. Robbins-Cherry of 50% and 33%, respectively, of their annual base salary, which bonus is payable upon attainment of objectives as determined in the subjective judgment of Midatech’s Board of Directors or a committee thereof, taking into account various factors without any preassigned weighting. For 2015, all of the executive officers received approximately 80% of their bonus target.
(2) 
The amounts reflect the value of benefits payable pursuant to pension plans.
(3)
Compensation information for David Benharris is not included in this table, as he was not considered an executive officer of Midatech in 2015.
 
 
The following table sets forth, as of December 31, 2015, the aggregate number of option awards held by Midatech’s executive officers:
 
Name
 
Number of
Options
 
Grant Date
 
Exercise
Price per
Share (£)
 
Expiration
Date
James Phillips
 
 400,000 (1)
 
 6/30/2014
 
 0.075
 
6/30/2024
   
 200,000 (2)
 
 5/9/2014
 
 0.075
 
5/1/2023
Nick Robbins-Cherry
 
 60,000 (1)
 
 6/30/2014
 
 0.075
 
6/30/2024
All executive officers as a group (3 persons) (3)
 
1,020,000 (1) (4)
 
(5)     
 
 0.075
 
(6)     
_________
(1)
Stock options held by Messrs. Phillips, Robbins-Cherry and Cook vest in the following installments: (i) 50% of the stock options vest when Midatech’s share price is £5.31 share, (ii) a further 25% of the stock options vest when Midatech’s share price is £13.72 a share and (iii) the remaining 25% of the stock options vest when Midatech’s share price is £18.86 a share. In connection with the acquisition of DARA, stock options issued to Mr. Benharris exercisable for shares of DARA common stock were assumed by Midatech and became exercisable for Ordinary Shares (subject to certain adjustments based upon the exchange ratio for DARA common stock in the merger). All Ordinary Shares issuable upon exercise of such options are to be delivered in the form of Depositary Shares. 
(2) 
The stock options are fully vested.
(3)
Option award information for Mr. Benharris is not included in this table, as he was not considered an executive officer in 2015.
(4) 
200,000 stock options are fully vested.
(5) 
The grant dates range from May 9, 2014 to July 1, 2014.
(6) 
The stock options expire between May 1, 2023 and July 1, 2024.
 
Agreements with Current Executive Officers
 
James N. Phillips and Nicholas Robbins Cherry . Midatech has entered into a service agreement (collectively, the “Service Agreements”) with each of Dr. James Phillips and Nicholas Robbins-Cherry, each entered into on December 2, 2014. The Service Agreement with Dr. Phillips was effective from May 1, 2013, and for Mr. Robbins-Cherry from February 4, 2014. The Service Agreements provide for base salaries, incentive compensation benefits, and, in certain circumstances, severance benefits. Dr. Phillips’ Service Agreement may be terminated upon one years’ prior notice, and Mr. Robbins-Cherry’s Service Agreement may be terminated on six months prior notice.
 
The Service Agreements with each of Dr. Phillips and Mr. Robbins-Cherry provided for initial base salaries of £219,085 and £125,000, respectively. Dr. Phillips’ base salary is subject to increase each April 1 by the percentage increase, if any, in the “All Items Index of Retail Prices” published by the United Kingdom Office for Nation Statistics over the previous year. In the first quarter of 2016, the salary of Dr. Phillips was increased to £280,000 and the salary of Mr. Robbins-Cherry was increased to £160,000. Further, the base salaries of each of Dr. Phillips and Mr. Robbins-Cherry are reviewed annually to consider any increase in salary. The Service Agreements also include a bonus target for Dr. Phillips and Mr. Robbins-Cherry of 50% and 33%, respectively, of their annual base salary, which bonus is payable upon attainment of objectives as determined in the subjective judgment of Midatech’s Board of Directors or a committee thereof, taking into account various factors without any preassigned weighting. In addition to base salary and bonus, the Service Agreements provide for additional benefits, such as a 10% pension contribution, life insurance, medical insurance, vacation benefits and any other additional benefits as determined by the Midatech Board of Directors from time to time.
 
 
Each executive has also agreed that, for a period of six months following his termination, he will not directly or indirectly compete with Midatech. The Service Agreements includes provisions related to the non-disclosure of information and assignment of inventions. Among other things, these provisions prohibit each executive officer from disclosing any of Midatech’s proprietary and confidential information received during the course of employment and obligate each executive officer to assign to Midatech any inventions conceived or developed during the course of their employment. The Service Agreements also include confidentiality, non-solicitation, non-poaching and non-disparagement provisions.
 
The Service Agreements also provide the executive officers with certain payments and/or benefits upon certain terminations of employment. If the executive is terminated due to his inability to perform his duties due to illness or other incapacity for a continuous period of three months, or an aggregate period exceeding 100 working days in any period of 12-months, Midatech may, notwithstanding any other provision of the Service Agreement, terminate the executive’s employment upon six months’ written notice. During that period, the executive will not be entitled to receive his salary or any bonus payment, but will be entitled to any benefits owed under the Service Agreement. Further, notwithstanding any notice requirements for termination set forth in the Service Agreements, Midatech may, at any time and in its absolute discretion, terminate the Service Agreement and provide the executive with a payment in lieu of any required notice. The payment will comprise of the executive’s base salary, but will not include any bonus or other benefits, and shall be subject to any tax or insurance deductions. Notwithstanding the foregoing, Midatech may terminate the Service Agreement without notice or payment in lieu thereof if the executive:
 
 
·
is guilty of serious misconduct or any other misconduct which affects, or is likely to affect, prejudicially the interests of Midatech or any of its subsidiaries;
 
 
·
fails or neglects to efficiently and diligently discharge his duties or commits any serious or repeated breach or non-observance of any of the provisions of the Service Agreement or any share dealing code adopted by Midatech or any of its subsidiaries;
 
 
·
has an interim receiving order made against him, becomes bankrupt or makes any composition or enters into any deed of arrangement with his creditors;
 
 
·
is charged with an arrestable criminal offense (other than a road traffic offense in the United Kingdom or elsewhere for which a fine or non-custodial penalty is imposed);
 
 
·
is disqualified from holding office in any company by reason of an order of a court of competent jurisdiction;
 
 
·
becomes of unsound mind or becomes a patient under any statute relating to mental health;
 
 
·
is convicted of an offense under the United Kingdom’s Criminal Justice Act 1993 in relation to insider dealings or under any other present or future statutory enactment or regulations relating to insider dealings;
 
 
·
is in breach of the Model Code on directors’ dealings in listed securities, including securities trading on AIM, published by the London Stock Exchange; or
 
 
·
commits any other act warranting summary termination at common law including, but not limited to, any act justifying dismissal without notice in the terms of Midatech’s generally applicable disciplinary rules.
 
 
Craig Cook.   Midatech has entered into a contract of employment (the “Contract of Employment”) with Craig Cook.  The Contract of Employment was effective as of July 1, 2014 and provides for Mr. Cook’s base salary, incentive compensation benefits, and compensation surrounding a termination of his employment.  The Contract of Employment may be terminated by either Mr. Cook or Midatech with six months prior notice.
 
The Contract of Employment provides for an initial base salary and also includes a bonus target of 33% of Mr. Cook’s annual base salary, which bonus is payable upon attainment of objectives as determined in the subjective judgment of Midatech’s Board of Directors or a committee thereof, taking into account various factors without any preassigned weighting.  In addition to base salary and bonus, the Contract of Employment provides for additional benefits, such as a 10% pension contribution, life insurance, medical insurance, vacation benefits and any other additional benefits as determined by the Midatech Board of Directors from time to time.
 
Mr. Cook has also agreed that, for a period of six months following his termination, he will not do any work, whether paid or unpaid on his own behalf or for any third party without Midatech’s consent.  The Contract of Employment includes provisions related to the non-disclosure of information and assignment of inventions.  Among other things, these provisions prohibit Mr. Cook from disclosing any of Midatech’s proprietary and confidential information received during the course of employment and require Mr. Cook to assign to Midatech any inventions conceived or developed during the course of his employment.  The Contract of Employment also includes confidentiality and non-solicitation provisions.
 
The Contract of Employment provides that Midatech will pay Mr. Cook his normal salary during any notice period prior to termination.  Midatech is also permitted to terminate Mr. Cook’s employment effective immediately, without notice or payment, if Mr. Cook is found guilty of any fundamental or repudiatory breach of contract or any breach of the disciplinary rules applicable to Mr. Cook.
       
David Benharris . Midatech has also entered into an Executive Employment Agreement (the “Employment Agreement”) with David Benharris, effective January 1, 2016.  Mr. Benharris’ employment under the Employment Agreement is “at-will,” meaning that it may be terminated by either Midatech or Mr. Benharris at any time, for any reason.
 
The Employment Agreement provides for an initial annual base salary of $280,000 per year, which may be increased from time to time by Midatech’s Board of Directors.  Under the terms of the Employment Agreement, Mr. Benharris is also eligible for an annual target bonus of 50% of his annual base salary, which may be awarded based on the achievement of personal objectives and company objectives that the Midatech Board of Directors may set from year-to-year.  Mr. Benharris is also eligible under the Employment Agreement to receive those benefits provided to other Midatech executives living in the United States and as determined by the Board of Directors.  Pursuant to the Employment Agreement, Mr. Benharris is also provided with a company vehicle, which is leased by Midatech.
 
Mr. Benharris has also agreed that for the term of the Employment Agreement, and for a period following his termination of up to one year, the length of which depends on the circumstances of his termination, he will not directly or indirectly compete with Midatech.  The Employment Agreement also contains a provision prohibiting Mr. Benharris from disclosing confidential information during and after his term of employment with Midatech.
 
Notwithstanding the fact that the Employment Agreement may be terminated by either Midatech or Mr. Benharris at any time, for any reason, the Employment Agreement provides Mr. Benharris with certain payments and benefits upon termination of his employment.  If Midatech terminates the Employment Agreement for Cause (as such term is defined in the Employment Agreement), upon Mr. Benharris’ death or Permanent Disability (as such term is defined in the Employment Agreement), or upon a liquidation or dissolution of Midatech, or if Mr. Benharris terminates his employment without Good Reason (as such term is defined in the Employment Agreement), then Midatech has no obligations to Mr. Benharris, other than to pay any unpaid base salary due to him through the date of such termination.  If Mr. Benharris terminates the Employment Agreement for Good Reason or Midatech terminates the Employment Agreement without Cause, Mr. Benharris will be entitled to (i) a payment equal to six months of his then-current base salary and (ii) reimbursement for continued health insurance coverage on the same terms as applied immediately prior to his termination for the shorter of a period of six months or until Mr. Benharris obtains reasonably comparable coverage.  
 
Additionally, in recognition of Mr. Benharris’ prior employment agreement with DARA, dated January 19, 2015, Midatech agreed that if, prior to January 19, 2018, Mr. Benharris terminates his employment for Good Reason or Midatech terminates his employment in accordance with the terms of the Employment Agreement, Mr. Benharris will be entitled to the greater of (i) a payment equal to his then-current annual base salary or (ii) a payment equal to the aggregate amount of his then-current annual base salary that would have otherwise been payable over the remaining balance of the term ending on January 19, 2018.  Mr. Benharris will also receive reimbursement for continued health insurance coverage on the same terms as applied immediately prior to his termination until January 19, 2018, unless he obtains reasonably comparable coverage prior to that date.  If Mr. Benharris is terminated on or before December 3, 2016, he will also receive his then-current target annual bonus.
 
C. 
Board Practices
 
Board of Directors
 
Midatech’s Board of Directors is currently comprised of eight directors, two of whom are executive directors and six non-executive directors, reflecting a blend of different experience and backgrounds. The roles of Chairman of the Board of Directors (which is a non-executive position) and Chief Executive Officer have been split and there is a clear division of responsibility between the two. With a view towards maintaining the independence of the Board of Directors, no remuneration is paid to either the Chairman or non-executive directors in the form of shares.
  
  
Although adherence to the United Kingdom Corporate Governance Code is not compulsory, the Board of Directors apply certain aspects of such code to the extent appropriate to Midatech’s size, resources and stage of development.
   
The Board of Directors is responsible for  inter alia , approving interim and annual financial statements, formulating and monitoring Midatech’s strategy, approving financial plans and reviewing performance, as well as complying with legal, regulatory and corporate governance matters. There is a schedule of matters reserved for the Board of Directors.
 
The Board of Directors meets regularly to consider strategy, performance and the framework of internal controls. To enable the Board of Directors to discharge its duties, all directors receive appropriate and timely information. Briefing papers are distributed to all directors in advance of board meetings.
 
Board Committees
 
Midatech has established audit, nomination, remuneration and disclosure committees of the Board of Directors with formally delegated duties and responsibilities. From time to time separate committees may be set up by the Board of Directors to consider specific issues when the need arises.
 
Audit Committee
 
The Audit Committee consists of three members: Pavlo Protopapa (Chairman), Simon Turton and John Johnston. The Board of Directors has determined that Messrs. Protopapa, Turton and Johnston are independent under Rule 10A-3 of the Exchange Act and the applicable rules of the NASDAQ Stock Market and that Mr. Protopapa qualifies as an “audit committee financial expert” as defined under in Item 16A of Form 20-F.  
 
The Audit Committee of the Board of Directors assists the Board of Directors in discharging its responsibilities with regard to financial reporting, external and internal audits and controls, including reviewing and monitoring the integrity of the Midatech annual and interim financial statements, advising on the appointment of external auditors, reviewing and monitoring the extent of the non-audit work undertaken by external auditors, overseeing Midatech’s relationship with its external auditors, reviewing the effectiveness of the external audit process and reviewing the effectiveness of Midatech’s internal control review function. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board.
 
The Audit Committee meets not less than twice a year and otherwise as required.
 
Nomination Committee
 
The Nomination Committee is chaired by Rolf Stahel and is comprised of all other members of the Board of Directors. The Nomination Committee assists the Board of Directors in discharging its responsibilities relating to the composition and make-up of the Board of Directors and any committees of the Board of Directors. It is responsible for periodically reviewing the Board of Director’s structure and identifying potential candidates to be appointed as directors or committee members as the need may arise. The Nomination Committee is responsible for evaluating the balance of skills, knowledge and experience and the size, structure and composition of the Board of Directors and committees of the Board of Directors, retirements and appointments of additional and replacement directors and committee members and will make appropriate recommendations to the Board of Directors on such matters.
 
The Nomination Committee meets not less than once a year and otherwise as required.
 
Remuneration Committee
 
The Remuneration Committee consists of four members: Sijmen de Vries (Chairman), Simon Turton, Rolf Stahel and Michele Luzi. The Board of Directors has determined that Messrs. de Vries, Turton, Stahel and Luzi are independent under applicable rules of the NASDAQ Stock Market.
  
 
107
 
The Remuneration Committee of the Board of Directors is responsible, within agreed terms of reference, for establishing a formal and transparent procedure for developing policy on executive remuneration and setting the remuneration packages of individual directors. This includes agreeing with the Board of Directors on the framework for remuneration of the executive directors, the company secretary and such other members of the executive management of Midatech as it is designated to consider. It is also responsible for determining the total individual remuneration packages of each director including, where appropriate, bonuses, incentive payments and share options. No director may be involved in any decision as to his/her own remuneration. The Remuneration Committee ensures compliance with the United Kingdom Corporate Governance Code in relation to remuneration wherever possible.
   
The Remuneration Committee meets not less than twice a year and otherwise as required.
 
Disclosure Committee
 
The Disclosure Committee consists of four members: Dr. Jim Phillips (Chairman), Nicholas Robbins-Cherry, Pavlo Protopapa and John Johnston. The Disclosure Committee is responsible, within agreed terms of reference, for ensuring compliance with the AIM Rules and disclosure of information. The Disclosure Committee works closely with the Board of Directors to ensure that Midatech’s nominated adviser is provided with any information it reasonably requests or requires in order for it to carry out its responsibilities under the AIM Rules and the AIM Rules for Nominated Advisers.
 
The Disclosure Committee meets at least four times a year and otherwise as required.
 
Service Contracts
 
Except as described above under “ —B. Compensation of Non-Executive Directors ” and “ —B. Compensation of Executive Officers ,” Midatech does not have service contracts with any member of its Board of Directors or executive officers.
 
D. 
Employees
 
The number of Midatech employees by geographic location and function as of the end of the period for the fiscal years ended December 31, 2015, 2014 and 2013 was as follows:
 
 
  As of December 31,  
   
2015
  
2014
 
  
 
2013
 
Business functional area:
   
  
     
  
     
Research and development
 
 52
  
 
26
  
  
 
22
  
Sales and marketing
 
 7
  
 
--
  
  
 
--
  
General and administration
 
 23
  
 
10
 
  
 
7
  
     
  
     
  
     
Total
 
 82
   
36
  
   
29
  
 
 
  As of December 31,  
   
2015
  
2014
 
  
2013
 
Geography:
   
  
     
  
     
United Kingdom
 
 40
  
 
12
  
  
 
9
  
North America
 
 14
  
 
--
  
  
 
--
  
Spain
 
 28
  
 
24
  
  
 
20
  
     
  
     
  
     
Total
 
 82
   
36
  
   
29
 
 
 
To Midatech’s knowledge, none of its employees are represented by labor unions or covered by collective bargaining agreements. Midatech considers its relationship with its employees to be good.
 
 
Midatech Pharma España employment conditions, rules and regulations are governed by a union-based document. The contents of this document are re-negotiated with the central government every two years and stipulate professional grades relating to position descriptions and the salary bands associated with those grades. Each member of staff is assigned a grade commensurate with their position and responsibilities within the company and compliance with such document is obligatory.
 
E. 
Share Ownership
 
Information with respect to share ownership of members of Midatech’s Board of Directors and its executive officers is included in “ Item 7. Major Shareholders and Related Party Transactions .”
 
Equity Benefit Plans
 
Midatech Pharma PLC 2014 Enterprise Management Incentive Scheme
 
In connection with Midatech’s initial public offering in December 2014, Midatech’s Board of Directors established the Midatech Pharma PLC 2014 Enterprise Management Incentive Scheme (the “2014 EMI Scheme”), to allow it to grant options to purchase Ordinary Shares to qualifying employees and directors of Midatech and its subsidiaries (“Plan Participants”), for the purpose of attracting, rewarding and retaining such persons. As of December 31, 2015, Midatech had reserved 1,270,000 of its Ordinary Shares for issuance pursuant to the 2014 EMI Scheme, subject to certain adjustments set forth in the plan.
 
Administration . The overall responsibility for the operation and administration of the 2014 EMI Scheme is vested in the Midatech Board of Directors.
 
Eligibility . In order to be eligible to participate as a Plan Participant in the 2014 EMI Scheme, a person must be an employee or director of Midatech or any of its subsidiaries whose “committed time” amounts to at least 25 hours a week or, if less, 75% of his or her “working time,” as each of those terms are defined under the HM Revenue and Customs rules set out in Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 of the United Kingdom (“Schedule 5”). The Midatech Board of Directors may exercise its discretion in selecting the Plan Participants to whom stock options will be granted under the 2014 EMI Scheme.
 
Grant of Options . Options may be granted from time to time by the Midatech Board of Directors, other than when grants are not permitted under the Model Code, AIM Rules or there are other restrictions with regards to the Ordinary Shares. No payment will be made for the grant of a stock option.
 
Form of Options . Stock options granted under the 2014 EMI Scheme may be granted either with an exercise price greater than or equal to the market value of Ordinary Share at the date of grant, but not in any event at a price less than the nominal value of such share. The stock options may be stock options to subscribe for new Ordinary Shares.
 
The participant will have no stockholder rights until such time as he is able to exercise the stock option and acquire Ordinary Shares.
 
Size of Option Grants and Plan Limits . As of December 31, 2015, Midatech had reserved 1,270,000 of its Ordinary Shares for issuance. Stock options shall be granted under, and comply with, Schedule 5. This confers tax benefits on stock options up to a certain threshold. That threshold is currently such that when an employee has received and holds stock options with a value at grant of £120,000 or more, he or she may not have any further granted options for three years. In the event that this threshold is exceeded or Midatech ceases to satisfy the qualifying conditions, unapproved options may instead be granted under the terms of the 2014 EMI Scheme. The total value of shares subject to unexercised options at any time may not exceed £3.0 million. All options must be exercised within 10 years from the grant date as set out in the rules of the 2014 EMI Scheme, or as set forth in the applicable option agreement.
 
 
Vesting of Options . In the normal course, stock options will become eligible for vesting subject to the satisfaction of time and financial performance targets.
 
If a Plan Participant leaves the employment of Midatech or its subsidiaries for any reason, his or her stock option will generally lapse unless the Midatech Board of Directors exercises its discretion to allow the exercise of the stock option.
 
Performance Targets . All stock options granted under the 2014 EMI Scheme will be subject to appropriate performance targets determined by the Midatech Board of Directors, which may include share price targets, with stock options vesting in part on the attainment of each performance target.
 
Rights Attaching to Ordinary Shares . Ordinary Shares issued in connection with the exercise of stock options will rank equally with all other Ordinary Shares then in issue (save as regards any rights attaching to Ordinary Shares by reference to a record date prior to entry of the shares on the register of stockholders). Application will be made for admission to trading on AIM of new Ordinary Shares issued under the 2014 EMI Scheme.
 
Adjustments . If there is any adjustment of the issued share capital of Midatech, the Ordinary Shares subject to a stock option will be subject to appropriate adjustment. The Midatech Board of Directors may adjust stock options in such manner as it determines to be appropriate.
 
 
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
 
A. 
Major Shareholders
 
The following table sets forth information, as of March 15, 2016, regarding the beneficial ownership of Ordinary Shares, including:
 
 
·
each person that is known by Midatech to be a beneficial owner of 3% or more of Midatech ordinary shares ( based on information in our share register and information provided by such persons);
 
 
·
each member of Midatech’s Board of Directors;
 
 
·
each of Midatech’s executive officers; and
 
 
·
all members of Midatech’s Board of Directors and its executive officers, taken as a group.
 
Beneficial ownership of shares is determined under rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as noted by footnote, and subject to community property laws where applicable, Midatech believes, based upon the information provided to Midatech, that the persons and entities named in the table below have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. The percentage of beneficial ownership is based upon 33,467,504 Ordinary Shares outstanding as of March 15, 2016. Ordinary Shares subject to options currently exercisable or exercisable within 60 days of March 15, 2016 are deemed to be outstanding and beneficially owned by the person holding the options for the purposes of computing the percentage of beneficial ownership of that person and any group of which that person is a member, but are not deemed outstanding for the purpose of computing the percentage of beneficial ownership for any other person. Unless otherwise indicated, the address for each holder listed below is Midatech Pharma PLC, 65 Innovation Drive, Milton Park, Abingdon, Oxfordshire, OX14 4RQ, United Kingdom. All holders of Ordinary Shares, including those shareholders listed below, have the same voting rights with respect to such shares.
 
 
Name of Beneficial Owner
 
Amount and
Nature
Of Ownership (1)
   
Percent
of class
 
Major Stockholders:
           
Woodford Fund Management Limited (2)
    6,791,689       20.3 %
Ferracom Establishment (3)
    3,043,164       9.1 %
Ippon Capital SA (4)
    1,649,334       4.9 %
Finance Wales (5)
    1,531,136       4.6 %
Disruptive Capital Finance (6)
    1,524,294       4.6 %
Promida Holdings (7)
    1,118,266       3.3 %
Nanoline L.P. (8)
    1,052,878       3.1 %
Legal & General Investment Management (9)
    1,043,500       3.1 %
                 
Directors and Executive Officers:
               
David Benharris
    3,808       *  
Craig Cook, MB, BCH
    —       —  
Sijmen (Simon) de Vries, M.D.
    15,802       *  
John Johnston
    14,981       *  
Michele Luzi (10)
    209,522       *  
James N. Phillips, MB, ChB
    233,339       *  
Pavlo (Paul) Protopapa (11)
    1,649,334       4.9 %
Nicholas Robbins-Cherry
    500       *  
Rolf Stahel
    527,215       1.6 %
Simon Turton, Ph.D.
    215,328       *  
Directors and executive officers as a group (10
persons)
    2,869,829       8.6 %
 
__________________
* 
Less than one percent of the outstanding Ordinary Shares.
(1)
Includes the following Ordinary Shares subject to outstanding stock options exercisable within 60 days of February 16, 2016: Dr. de Vries—7,000; Mr. Luzi—18,796; Dr. Phillips—200,000; Mr. Benharris—3,808; and all current directors and executive officers as a group—229,604.
(2)
The principal business address of Woodford Fund Management Limited is 9400 Garsington Road, Oxford, OX4 2HN, United Kingdom.
(3)
The principal business address of Ferracom Establishment is Landstrasse 99, FL 9494, Schaan, Liechtenstein.
(4)
Pavlo (Paul) Protopapa, one of Midatech’s directors, is a director of Ippon Capital SA. The principal business address of Ippon Capital SA is 7 Rue de Chantepoulet, 1211 Geneva 1, Switzerland.
(5)
The principal business address of Finance Wales Investments Limited is 1 Capital Quarter, Tyndall Street, Cardiff, Wales CF10 4BZ.
(6)
The principal business address of Disruptive Capital Finance LLP is Vestry House, Laurence Pountney Hill, London, United Kingdom EC4R OEH.
(7)
The principal business address of Promida Holdings is Hawksford House, Caledonia Place, St. Helier, Jersey JE4 8QP.
(8)
The principal business address of Nanoline L.P. is 201 Main Street, Suite 2600, Fort Worth, Texas 76102 United States of America.
(9)
The principal business address of Legal & General Investment Management Limited is 1 Coleman St, London, United Kingdom EC2R 5AA.
(10) 
Includes 69,382 Ordinary Shares held by JTC Trustees Limited, of which Mr. Luzi is a beneficiary.
(11)
Includes 1,649,334 Ordinary Shares directly held by Ippon Capital SA. Mr. Protopapa, a director of Ippon Capital SA, disclaims beneficial ownership of all shares held directly by Ippon Capital SA except to the extent of his pecuniary interest therein, if any.
 
As of March 15, 2016, there were 299 individual holders of record entered in Midatech’s share register. The number of individual holders of record is based exclusively upon Midatech’s share register and does not address whether a share or shares may be held by the holder of record on behalf of more than one person or institution who may be deemed to be the beneficial owner of a share or shares in our company. As of March 15, 2016, 62% of Midatech’s outstanding Ordinary Shares were held in the United Kingdom. As of March 15, 2016, assuming that all of the Ordinary Shares represented by Depositary Shares are held by residents of the United States, approximately 20% of Midatech’s outstanding Ordinary Shares were held in the United States. At such date, there were outstanding 2,126,014 Depositary Shares, each representing two Ordinary Shares, and in the aggregate representing approximately 13% of the outstanding Ordinary Shares. The actual number of holders is greater than these numbers of record holders, and includes beneficial owners whose Depositary Shares are held in street name by brokers and other nominees. This number of holders of record also does not include holders whose shares may be held in trust by other entities.
 
 
To Midatech’s knowledge, it is not directly or indirectly owned or controlled by another corporation, by any foreign government, or by any other natural or legal person, nor is Midatech aware of any arrangement that may, at a subsequent date, result in a change of control of the Company. 
 
Midatech was incorporated on September 12, 2014 and its initial public offering of Ordinary Shares on the AIM Market took place on December 8, 2014 (“Admission”). Since Admission, there have been no significant changes in ownership by any major shareholder in Midatech.
 
B. 
Related Party Transactions
 
Agreement with Chesyl Pharma Limited
 
In April 2014, Midatech Limited entered into a consultancy agreement (the “Consultancy Agreement”) with Chesyl Pharma Limited (“Chesyl”). Chesyl is wholly owned by Mr. Rolf Stahel, a director of Midatech. The term of the Consultancy Agreement commenced on March 1, 2014, with an initial term of 12 months and continuing thereafter until terminated in accordance with its terms. Chesyl was engaged to provide management consultancy services, including support and assistance to the board of directors of Midatech Limited in relation to operational issues and the provision of advice in relation to corporate strategy, corporate activities, fund raising and mergers and acquisition opportunities (collectively, the “Services”).
 
Pursuant to the terms of the Consultancy Agreement, Mr. Stahel (or a similarly qualified substitute party, approved by the Midatech Limited) is obliged to procure the Services at such times and at such locations as may be reasonably necessary for 10 full working days per year. Mr. Stahel may not sub-contract these obligations. Midatech Limited will pay Chesyl £50,000 per annum for Mr. Stahel’s services, and if engaged for any additional days, a rate of £2,000 will be paid per full working day.
 
Transactions with MonoSol RX
 
Midatech considers MonoSol RX, LLC to be a related party by virtue of the fact that MonoSol RX, LLC is a shareholder of Midatech and is a collaborative partner in the MidaSol Therapeutics joint operation.
 
During the last three fiscal years, under the terms of the joint venture agreement with MonoSol RX, LLC, Midatech Limited received from MonoSol RX, LLC £1.1 million for research services.
 
Lock-in Agreements
 
In connection with its Admission, on December 8, 2014 Midatech entered into certain Lock-in Agreements with its directors, related parties, applicable employees (both such terms as defined in the AIM Rules) and Panmure Gordon (UK) Limited (“Panmure”), in accordance with Rule 7 of the AIM Rules. Pursuant to these agreements each of the directors, related parties and applicable employees (representing in aggregate 20.4% of Midatech’s share capital at that time) agreed not to dispose of any of his interests in the Ordinary Shares prior to the first anniversary of Admission, and thereafter for the following 12 months only to dispose of them through Midatech’s broker(s) at the relevant time. There are certain exceptions to the agreements which are those limited exceptions permitted by Rule 7 of the AIM Rules, being disposals (i) in the event of an intervening court order; (ii) upon the death of a locked-in party; or (iii) in acceptance of a takeover offer for Midatech available to all stockholders.
 
 
At or around the time of Admission, Midatech also entered into Lock-in Agreements with certain other stockholders (representing in aggregate 18.5% of Midatech’s share capital at that time) and Panmure Gordon pursuant to which each such stockholder has agreed not to dispose of any of his or her interests in the Ordinary Shares prior to the first anniversary of Admission, and thereafter for the following 12 months only to dispose of them through the Midatech’s broker(s) at the relevant time. There are certain exceptions to theses lock-in agreements including disposals (i) to an associate; (ii) to (in certain circumstances) a person acting in the capacity of trustee of a trust created by the locked-in person; (iii) in acceptance of a general offer made to stockholders of Midatech to acquire all the issued Midatech ordinary shares; (iv) under any scheme or reconstruction under Section 110 of the Insolvency Act 1986 of the United Kingdom; (v) pursuant to any compromise or arrangement providing for the acquisition by any person (or group of persons acting in concert) of 50% or more of the equity share capital of Midatech (whether such arrangement or compromise has been sanctioned by the court or not); (vi) pursuant to an intervening court order; or (vii) by the personal representatives after the death of the locked-in person (if applicable).
 
Certain other stockholders of Midatech (all of whom were vendors of Midatech Wales) (representing in aggregate 16.8% of Midatech’s share capital at that time) also agreed pursuant to that certain Sale and Purchase Agreement, dated November 17, 2014, by and among Midatech, certain primary sellers of Q Chip Limited named therein, certain warrantors of Q Chip Limited name therein and R. Ian Smith, as seller representative (the “Q Chip Acquisition Agreement”), not to dispose of any of his or her interests in the Ordinary Shares prior to the first anniversary of Admission, and thereafter for the following 12 months only to dispose of them through Midatech’s broker(s) at the relevant time. There are certain exceptions to theses lock-in agreements including disposals (i) to an associate; (ii) to (in certain circumstances) a person acting in the capacity of trustee of a trust created by the locked-in person; (iii) in acceptance of a general offer made to stockholders of Midatech to acquire all the issued Midatech ordinary shares; (iv) under any scheme or reconstruction under Section 110 of the Insolvency Act 1986 of the United Kingdom; (v) pursuant to any compromise or arrangement providing for the acquisition by any person (or group of persons acting in concert) of 50% or more of the equity share capital of Midatech (whether such arrangement or compromise has been sanctioned by the court or not); (vi) pursuant to an intervening court order; or (vii) by the personal representatives after the death of the locked-in person (if applicable).
 
C. 
Interests of Experts and Counsel
 
Not Applicable
 
FINANCIAL INFORMATION.
 
A. 
Consolidated Statements and Other Financial Information
 
See “Item 18. Financial Statements.”
 
Legal Proceedings
 
From time to time, Midatech may be subject to various claims or legal proceedings that arise in the ordinary course of its business. Midatech is currently not a party to, and is not aware of any threat of, any legal proceedings, which, in the opinion of management, is likely to have or could reasonably possibly have a material adverse effect on Midatech’s business, financial condition or results of operations.
 
Litigation Related to the Merger
 
In connection with the acquisition of DARA, DARA, its individual Board of Directors, Midatech and two of its Delaware subsidiaries formed solely to facilitate the merger, were named as defendants in purported class action lawsuits brought by alleged DARA stockholders challenging DARA’s proposed merger with Midatech. Three stockholder actions were filed in the Court of Chancery of the State of Delaware, ( Steve Schnipper v. David J. Drutz, et al. , C.A. No. 11194-VCG, filed June 23, 2015; Matthew Quinn v. DARA BioSciences, Inc., et al. , C.A. No. 11217-VCG, filed on June 26, 2015; and Eric Edwards v. David J. Drutz, et al. , C.A. No. 11262-VCG, filed on July 8, 2015) and one stockholder action was filed in the Superior Court in Wake County, North Carolina ( Jacob Presson v. DARA BioSciences, Inc., et al. , C.A. 15-CV-009775, filed on July 27, 2015) (the “North Carolina Complaint”). On August 21, 2015, the plaintiff in the Schnipper action filed an amended complaint (the “Schnipper Amended Complaint”). On September 15, 2015, the Delaware Court of Chancery issued an order consolidating all of the Delaware actions into one matter, In re DARA BioSciences Stockholder Litigation , Cons. C.A. 11194-VCG (the “Consolidated Delaware Action”), and designated the Schnipper Amended Complaint as the operative complaint. On October 1, 2015, the Superior Court in Wake County, North Carolina entered an order staying the North Carolina Complaint at the request of the parties.
 
 
The stockholder actions generally alleged, among other things, that (i) each member of DARA’s Board of Directors breached his or her fiduciary duties to DARA and its stockholders by authorizing the sale of DARA to Midatech, (ii) the merger does not maximize value to DARA stockholders; and (iii) Midatech, its subsidiaries, and DARA aided and abetted the breaches of fiduciary duty allegedly committed by the members of the DARA Board of Directors. In addition, the Consolidated Delaware Action alleged that Midatech’s Registration Statement on Form F-4 filed August 11, 2015 omitted or misstates certain material information. The stockholder actions sought class action certification and equitable relief, including judgments enjoining the defendants from consummating the merger on the agreed-upon terms.
 
On January 5, 2016, the Delaware Court of Chancery entered a Stipulation and Order Concerning Plaintiffs’ Voluntary Dismissal of the Action and Plaintiffs’ Counsel’s Anticipated Application for an Award of Attorneys’ Fees and Expenses (the “Dismissal Order”).  Pursuant to the Dismissal Order, the Consolidated Delaware Action was dismissed with prejudice as to the named plaintiffs and without prejudice as to the other members of the purported class.  The Dismissal Order also provides that the Court of Chancery will retain jurisdiction to determine whether plaintiffs’ counsel is entitled to an award of attorneys’ fees and expenses based on plaintiffs’ argument that certain supplemental disclosures made by DARA were made in response to Plaintiffs’ allegations that Midatech’s Registration Statement on Form F-4 filed August 11, 2015 omitted or misstated certain material information.
 
Dividend Policy
 
Midatech has never declared or paid any cash dividends on its shares, and it has no present intention of declaring or paying any dividends in the foreseeable future. Midatech may, by ordinary resolution, declare a dividend to be paid to the share owners according to their respective rights and interests in profits, and may fix the time for payment of such dividend. No dividend may be declared in excess of the amount recommended by the directors. The directors may from time to time declare and pay to the share owners of Midatech such interim dividends as appear to the directors to be justified by the profits of Midatech available for distribution. There are no fixed dates on which entitlement to dividends arises on Midatech ordinary shares.
 
The share owners may pass, on the recommendation of the directors, an ordinary resolution to direct that all or any part of a dividend to be paid by distributing specific assets, in particular paid up shares or debentures of any other body corporate. The articles also permit, with the prior authority of an ordinary resolution of shareholders, a scrip dividend scheme under which share owners may be given the opportunity to elect to receive fully paid Ordinary Shares instead of cash, or a combination of shares and cash, with respect to future dividends.
 
By the way of the exercise of a lien, if a share owner owes any money to Midatech relating in any way to shares, the board may deduct any of this money from any dividend on any shares held by the share owner, or from other money payable by Midatech in respect of the shares. Money deducted in this way may be used to pay the amount owed to Midatech.
 
Unclaimed dividends and other money payable in respect of a share can be invested or otherwise used by directors for the benefit of Midatech until they are claimed. A dividend or other money remaining unclaimed 12 years after it first became due for payment will be forfeited and shall revert to Midatech.
 
All of the shares represented by the Depositary Shares have the same dividend rights as all of Midatech’s other outstanding shares.
 
 
B. 
Significant Changes
 
None.
 
 
THE OFFER AND LISTING.
 
A. 
Offer and Listing Details.
 
The Ordinary Shares have been trading on AIM, a market operated by the London Stock Exchange plc (“AIM”) under the symbol “MTPH” since December 8, 2014.
 
The following table sets forth, for the periods indicated, the reported high and low closing sale prices of the Ordinary Shares on AIM in British pounds sterling and U.S. dollars (rounded to the nearest whole cent). Price per Ordinary Share in U.S. dollars amounts below have been translated into U.S. dollars at the noon buying rate of the Federal Reserve Bank of New York on December 31, 2015 of £1.00 to $1.4746.
 
 
Price Per Ordinary Share
  Price Per Ordinary Share
 
£
  $
 
High
 
Low
 
High
 
Low
Annual Information
             
Year Ended December 31, 2014 (1)
2.85
 
2.60
  
4.20
 
3.83
Year Ended December 31, 2015
3.30
 
1.50
  
4.87
 
2.21
               
Quarterly Information:
             
Fourth Quarter 2014 (1)
2.85
 
2.60
 
4.20
 
3.83
First Quarter 2015
3.30
 
2.65
  
4.87
 
3.91
Second Quarter 2015
3.20
 
2.60
  
4.72
 
3.83
Third Quarter 2015
3.05
 
2.65
  
4.50
 
3.91
Fourth Quarter 2015
2.85
 
1.50
  
4.20
 
2.21
First Quarter 2016
2.05
 
1.33
  
3.02
 
1.96
               
Monthly Information:
             
October 2015
2.65
 
2.57
 
3.91
 
3.79
November 2015
2.85
 
2.58
  
4.20
 
3.80
December 2015
2.68
 
1.50
  
3.95
 
2.21
January 2016
2.05
 
1.70
  
3.02
 
2.51
February 2016
1.74
 
1.70
  
2.57
 
2.51
March 2016
1.72
 
1.33
 
2.54
 
1.96
April 2016 (through April 8, 2016)
1.75
 
1.42
 
2.58
 
2.09
_____________
(1)
The Ordinary Shares began trading on AIM on December 8, 2014. Prior to that, no established market for Ordinary Shares existed.
 
On April 8, 2016, the last reported sales price of an Ordinary Share on AIM was £1.62 ($2.38).
 
 
The Depositary Shares, each representing two Ordinary Shares, have been trading on the NASDAQ Capital Market under the symbol “MTP” since December 7, 2015. The following table sets forth, for the periods indicated, the reported high and low closing sale prices of the Depositary Shares on the NASDAQ Capital Market in U.S. Dollars.
 
 
Price Per Depositary Share
 
$
 
High
 
Low
Annual Information
     
Year Ended December 31, 2015 (1)
8.09
  
4.09
       
Quarterly Information:
     
Fourth Quarter 2015
8.09
  
4.09
First Quarter 2016
5.72
  
3.33
       
Monthly Information:
     
December 2015
8.09
  
4.09
January 2016
5.72
  
4.33
February 2016
4.72
  
4.55
March 2016
4.67
 
3.33
April 2016 (through April 8, 2016)
5.44
 
4.30
______
( 1)
The Depositary Shares began trading on the NASDAQ Capital Market on December 7, 2015. Prior to that, no established market for the Depositary Shares existed.
 
On April 8, 2016, the last reported sales price of a Depositary Share on the NASDAQ Capital Market was $4.50.
 
B. 
Plan of Distribution
Not applicable.
 
C. 
Markets
 
Our Ordinary Shares are listed on AIM under the symbol “MTPH” and the Depositary Shares are listed on the NASDAQ Capital Market under the symbol “MTP.”
 
D. 
Seller Shareholders
 
Not applicable.
 
E. 
Dilution
 
Not applicable.
 
F. 
Expenses of the Issue
 
Not applicable.
 
 
ADDITIONAL INFORMATION.
 
A. 
Share Capital
 
Not applicable.
 
B. 
Memorandum and Articles of Association
 
Midatech incorporates by reference into this annual report the description of its articles of association contained in its Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended.
 
C. 
Material Contracts
 
Except as otherwise disclosed in this annual report, Midatech is not currently, and has not been in the last two years, party to any material contract, other than contracts entered into in the ordinary course of business.
 
D. 
Exchange Controls
 
Other than certain economic sanctions which may in place from time to time, there are currently no United Kingdom laws, decrees or regulations restricting the import or export of capital or affecting the remittance of dividends or other payment to holders of Ordinary Shares who are non-residents of the United Kingdom. Similarly, other than certain economic sanctions which may be in force from time to time, there are no limitations relating only to non-residents of the United Kingdom under English law or Midatech’s articles of association on the right to be a holder of, and to vote in respect of, the Ordinary Shares.
 
E. 
Taxation
 
Taxation in the United States
 
The following is a summary of material U.S. federal income tax consequences of the ownership and disposition of Depositary Shares by U.S. holders (as defined below). This summary is for general information only and is not tax advice. Each investor should consult its tax advisor with respect to the tax consequences of the ownership and disposition of Depositary Shares.
 
This summary is based on provisions of the Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations promulgated thereunder (whether final, temporary, or proposed), administrative rulings, and judicial interpretations thereof, and the Convention Between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains of 2001, as amended (the “U.S.-U.K. Treaty”), all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect.
 
For purposes of this discussion, the term “U.S. holder” means a holder of Depositary Shares that is, for U.S. federal income tax purposes:
 
 
·
an individual who is a citizen or resident of the United States;
 
 
·
a corporation or other entity taxable as a corporation that is created or organized in the United States or under the laws of the United States or any state thereof or the District of Columbia;
 
 
·
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
 
 
 
·
any trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) such trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
 
This summary addresses only the U.S. federal income tax considerations for U.S. holders that acquire and hold the Depositary Shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a holder in light of its particular circumstances, or that may apply to holders that are subject to special treatment under the U.S. federal income tax laws (including, for example, banks, financial institutions, underwriters, insurance companies, dealers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting for their securities, persons subject to the alternative minimum tax, persons that have a functional currency other than the U.S. dollar, tax-exempt organizations (including private foundations), mutual funds, subchapter S corporations, partnerships or other pass-through entities for U.S. federal income tax purposes, certain expatriates, corporations that accumulate earnings to avoid U.S. federal income tax, persons who hold Depositary Shares as part of a hedge, straddle, constructive sale, conversion or other integrated transaction, persons who acquire Depositary Shares through the exercise of options or other compensation arrangements, persons who own (or are treated as owning) 10% or more of the outstanding voting stock of Midatech, or persons who are not U.S. holders). In addition, this discussion does not address any aspect of state, local, foreign, estate, gift or other tax law that may apply to holders of Depositary Shares.
 
The U.S. federal income tax treatment of a partner in a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) generally will depend on the status of the partner and the activities of the partnership. A partner in such a partnership should consult its tax advisor regarding the associated tax consequences.
 
Consequences Relating to Ownership and Disposition of  Depositary Shares
 
Ownership of Depositary Shares. For U.S. federal income tax purposes, a holder of Midatech Depositary Shares will generally be treated as if such holder directly owned the ordinary shares represented by such Midatech Depositary Shares.
 
Distributions on Depositary Shares . Subject to the discussion below under “— Passive Foreign Investment Company Rules ,” the gross amount of any distribution on Depositary Shares (including withheld taxes, if any) made out of Midatech’s current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will generally be taxable to a U.S. holder as dividend income on the date such distribution is actually or constructively received. Any such dividends paid to corporate U.S. holders generally will not qualify for the dividends received deduction that may otherwise be allowed under the Code. Distributions in excess of Midatech’s current and accumulated earnings and profits would generally be treated first as a non-taxable return of capital to the extent of the U.S. holder’s basis in the Depositary Shares, and thereafter as capital gain. However, since Midatech does not calculate its earnings and profits under U.S. federal income tax principles, it is expected that any distribution on Depositary Shares will be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
 
Dividends paid in currencies other than the U.S. dollar, if any, will generally be taxable to a U.S. holder as ordinary dividend income in an amount equal to the U.S. dollar value of the currency received on the date such distribution is actually or constructively received. Such U.S. dollar value must be determined using the spot rate of exchange on such date, regardless of whether the non-U.S. currency is actually converted into U.S. dollars on such date. The U.S. holder may realize exchange gain or loss if the currency received is converted into U.S. dollars after the date on which it is actually or constructively received. In general, any such gain or loss will be ordinary and will be treated as from sources within the United States for U.S. foreign tax credit purposes.
 
 
Subject to the discussion below under “ —3.8% Medicare Tax on Net Investment Income ,” dividends received by certain non-corporate U.S. holders (including individuals) from a “qualified foreign corporation” may be eligible for reduced rates of taxation, currently at a maximum rate of 20%, provided that certain holding period requirements and other conditions are satisfied. For these purposes, a foreign corporation will generally be treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares that are readily tradable on an established securities market in the United States. U.S. Treasury Department guidance indicates that the Depositary Shares, which are listed on NASDAQ, would be considered readily tradable on an established securities market in the United States. However, there can be no assurance that the Depositary Shares will be considered readily tradable on an established securities market in future years. A foreign corporation is also treated as a qualified foreign corporation if it is eligible for the benefits of a comprehensive income tax treaty with the United States which is determined by the U.S. Treasury Department to be satisfactory for purposes of these rules and which includes an exchange of information provision. The U.S. Treasury Department has determined that the U.S.-U.K. Treaty meets these requirements. Midatech would not constitute a qualified foreign corporation for purposes of these rules if it is a passive foreign investment company for the taxable year in which it pays a dividend or for the preceding taxable year, as discussed below under “— Passive Foreign Investment Company Rules .”
 
Subject to certain conditions and limitations, non-U.S. taxes, if any, withheld on dividends paid by Midatech may be treated as foreign taxes eligible for a credit against a U.S. holder’s U.S. federal income tax liability under the U.S. foreign tax credit rules. The rules governing the U.S. foreign tax credit are complex, and U.S. holders should consult their tax advisors regarding the availability of the U.S. foreign tax credit under their particular circumstances.
 
Sale of Depositary Shares . A U.S. holder will generally recognize gain or loss on any sale, exchange, redemption, or other taxable disposition of Midatech Depositary Shares in an amount equal to the difference between the amount realized on the disposition and such holder’s tax basis in the shares. Subject to the discussion below under “— Passive Foreign Investment Company Rules ,” any gain or loss recognized by a U.S. holder on a taxable disposition of Midatech Depositary Shares will generally be capital gain or loss and will be long-term capital gain or loss if the holder’s holding period in such share exceeds one year at the time of the disposition. The deductibility of capital losses is subject to limitations.
 
For a cash basis taxpayer, units of foreign currency received will generally be translated into U.S. dollars at the spot rate on the settlement date of the sale. In that case, no foreign currency exchange gain or loss will result from currency fluctuations between the trade date and the settlement date of such sale. An accrual basis taxpayer may elect to apply the same rules applicable to cash basis taxpayers with respect to the sale of Midatech Depositary Receipts that are traded on an established securities market, provided that the election must be applied consistently from year to year and cannot be changed without the consent of the IRS. For an accrual method taxpayer who does not make such an election, units of foreign currency received will generally be translated into U.S. dollars at the spot rate on the trade date of the sale. Such an accrual basis taxpayer may recognize foreign currency exchange gain or loss based on currency fluctuations between the trade date and the settlement date of such sale. In general, any such gain or loss will be ordinary and will be treated as from sources within the United States for U.S. foreign tax credit purposes.
 
Passive Foreign Investment Company Rules . A foreign corporation is a passive foreign investment company  (“PFIC”) if either (1) 75% or more of its gross income for the taxable year is passive income or (2) the average percentage of assets held by such corporation during the taxable year that produce passive income or that are held for the production of passive income is at least 50%. For purposes of applying the tests in the preceding sentence, the foreign corporation is deemed to own its proportionate share of the assets, and to receive directly its proportionate share of the income, of any other corporation of which the foreign corporation owns, directly or indirectly, at least 25% by value of the stock.
 
Based upon estimates with respect to its income, assets, and operations, it is expected that Midatech will not be a PFIC for the current taxable year. However, because the determination of PFIC status must be made on an annual basis after the end of the taxable year and will depend on the composition of the income and assets, as well as the nature of the activities, of Midatech and its subsidiaries from time to time, there can be no assurance that Midatech will not be considered a PFIC for any taxable year.
 
 
Classification of a foreign corporation as a PFIC can have various adverse U.S. tax consequences to U.S. holders, including taxation of gain on a sale or other disposition of the shares of the corporation at ordinary income rates and imposition of an interest charge on gain or on distributions with respect to the shares. Unless a U.S. holder of PFIC shares elects to be taxed annually on a mark-to-market basis or makes a “qualified electing fund” election with respect to the shares and certain other requirements are met, gain realized on the sale or other disposition of PFIC shares would generally not be treated as capital gain. Instead, the U.S. holder would be treated as if the U.S. holder had realized such gain ratably over the holder’s holding period for the PFIC shares. The amounts allocated to the taxable year of sale or other disposition and to any year before the foreign corporation became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for such year, together with an interest charge in respect of the tax attributable to each such year. Similar rules apply to the extent any distribution in respect of PFIC shares exceeds 125% of the average annual distribution on such PFIC shares received by the shareholder during the preceding three years or holding period, whichever is shorter. With certain exceptions, a foreign corporation is treated as a PFIC with respect to a shareholder if the corporation was a PFIC with respect to the shareholder at any time during the shareholder’s holding period of the foreign corporation’s stock. Dividends paid to with respect to shares of a PFIC are not eligible for the special tax rates applicable to qualified dividend income of certain non-corporate holders. Instead, such dividend income is taxable at rates applicable to ordinary income. If Midatech were to be classified as a PFIC for any taxable year in which a U.S. holder held the Depositary Shares, the PFIC regime described above generally would apply.
 
If Midatech were to be treated as a PFIC, the tax consequences described above could be avoided by a “mark-to-market” election. A U.S. holder making a “mark-to-market” election (assuming the requirements for such an election are satisfied) generally would (i) be required to include as ordinary income the excess of the fair market value of the Depositary Shares on the last day of the U.S. holder’s taxable year over the U.S. holder’s adjusted tax basis in such Depositary Shares and (ii) be allowed a deduction in an amount equal to the lesser of (A) the excess, if any, of the U.S. holder’s adjusted tax basis in the Depositary Shares over the fair market value of such Depositary Shares on the last day of the U.S. holder’s taxable year or (B) the excess, if any, of the amount included in income because of the election for prior taxable years over the amount allowed as a deduction because of the election for prior taxable years. In addition, upon a sale or other taxable disposition of Depositary Shares, a U.S. holder would recognize ordinary income or loss (which loss could not be in excess of the amount included in income because of the election for prior taxable years over the amount allowed as a deduction because of the election for prior taxable years). If Midatech were to be treated as a PFIC, different rules would apply to a U.S. holder making a “qualified electing fund” election with respect to Depositary Shares. However, because Midatech does not intend to prepare or provide the information that would permit the making of a valid “qualified electing fund” election, such an election will not be available to U.S. holders.
 
U.S. holders are urged to consult their own tax advisors about the PFIC rules, including the availability of the “mark-to-market” election.
 
3.8% Medicare Tax on “Net Investment Income”
 
A 3.8% tax, or “Medicare Tax,” is imposed on all or a portion of “net investment income,” which may include any gain realized or amounts received with respect to Depositary Shares, received by (i) U.S. holders that are individuals with modified adjusted gross income in excess of $200,000 for an unmarried individual, $250,000 for a married taxpayer filing a joint return (or a surviving spouse), or $125,000 for a married individual filing a separate return, and (ii) certain estates and trusts. U.S. holders should consult their own tax advisors with respect to the applicability of the Medicare Tax.
 
Information Reporting and Backup Withholding
 
U.S. holders may be subject to information reporting requirements and may be subject to backup withholding with respect to dividends on Depositary Shares and on the proceeds from the sale, exchange, or disposition of Depositary Shares unless the U.S. holder provides an accurate taxpayer identification number and complies with certain certification procedures or otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax and amounts withheld may be allowed as a credit against the U.S. holder’s U.S. federal income tax liability and may entitle the U.S. holder to a refund, provided that certain required information is timely furnished to the IRS.
 
 
Foreign Asset Reporting
 
U.S. holders who are individuals and who own “specified foreign financial assets” with an aggregate value in excess of $50,000 are generally required to file an information statement along with their tax returns, currently on IRS Form 8938, with respect to such assets. “Specified foreign financial assets” include securities issued by a non-U.S. issuer (which would include the Depositary Shares) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Individuals who fail to report the required information could be subject to substantial penalties, and such individuals should consult their own tax advisors concerning the application of these rules to their investment in Depositary Shares.
 
F. 
Dividends and Payment Agents
 
Not applicable.
 
G. 
Statements by Experts
 
Not applicable.
 
H. 
Documents on Display
 
Midatech is subject to the informational requirements of the Exchange Act. Accordingly, it is required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
 
Midatech also makes available on its website, free of charge, its annual report and the text of its reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Midatech’s website address is “www.midatechpharma.com.” The information contained on Midatech’s website is not incorporated by reference in this annual report.
 
I. 
Subsidiary Information
 
Not applicable.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Midatech is exposed to a variety of financial risks, including, but not limited to, market risk (including foreign exchange and interest rate risks), credit risks, and liquidity risks. Midatech’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on its financial performance.
 
Credit Risk
 
Credit risk is the risk of financial loss to the Group if a development partner or counterparty to a financial instrument fails to meet its contractual obligations. Midatech is mainly exposed to credit risk from amounts due from collaborative partners which is deemed to be low.
 
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with high credit status are accepted.
 
The Group does not enter into derivatives to manage credit risk.
 
 
The total exposure to credit risk of the Group is equal to the total value of the financial assets held at year end.
 
Cash in Bank
 
The Group is continually reviewing the credit risk associated with holding money on deposit in banks and seeks to mitigate this risk by holding deposits with banks with high credit status.
 
Fair Value and Cash Flow Interest Rate Risk
 
Midatech is not significantly exposed to cash flow interest rate risk from short term and long-term borrowings at variable rate as the majority of borrowings, with the exception of finance leases are held on fixed rates.
 
Midatech has minimal exposure to interest rate risk as it has had minimal borrowings on variable rates and immaterial levels of interest paid and received on their variable rate loans.
 
Midatech’s exposure to fair value interest rate risk is also considered to be immaterial.
 
Foreign Exchange Risk
 
Foreign exchange risk arises because the Group has material operations located in Bilbao, Spain and the United States, whose functional currency is not the same as the functional currency of Midatech. Midatech’s net assets arising from such overseas operations are exposed to currency risk resulting in gains or losses on retranslation into British pounds sterling. Given the levels of materiality, the Group does not hedge its net investments in overseas operations as the cost of doing so is disproportionate to the exposure.
 
Foreign exchange risk also arises when individual Midatech entities enter into transactions denominated in a currency other than their functional currency; Midatech’s transactions outside the United Kingdom to the U.S. and Europe drive foreign exchange movements where suppliers invoice in currency other than British pounds sterling. These transactions are not hedged because the cost of doing so is disproportionate to the risk.
 
As December 31, 2015 and 2014, the Group’s exposure to foreign exchange risk was not considered material.
 
Liquidity Risk
 
Liquidity risk arises from Midatech’s management of working capital. It is the risk that Midatech will encounter difficulty in meeting its financial obligations as they fall due.
 
It is Midatech’s aim to settle balances as they become due.
 
The Group’s current financial position following its initial public offering in the United Kingdom in December 2014 is such that it does not consider there to be a short term liquidity risk, however it will continue to monitor long term cash projections in light of Midatech’s development plan and will consider raising funds as required to fund long term development projects. Development expenditure can be curtailed as necessary to preserve liquidity.
 
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
 
A. 
Debt Securities
 
Not applicable.
 
B. 
Warrants and Rights
 
Not applicable.
 
 
C. 
Other Securities
 
Not applicable.
 
D. 
American Depositary Shares
 
Depositary Share holders will be required to pay the following service fees to Deutsche Bank Trust Company Americas, the depositary bank for the Depositary Shares (the “Depositary”), and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of such holders Depositary Shares):
 
 
 
Service
  
 
Fees
     
·      to any person to whom Depositary Shares are issued or to any person to whom a distribution is made in respect of Depositary Share distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash)
  
Up to US$0.05 per Depositary Share issued
     
·      to any person surrendering Depositary Shares for withdrawal of deposited securities or whose Depositary Shares are cancelled or reduced for any other reason including, inter alia, cash distributions made pursuant to a cancellation or withdrawal
  
Up to US$0.05 per Depositary Share cancelled
     
·      Distribution of cash dividends
  
Up to US$0.05 per Depositary Share held
     
·      Distribution of cash entitlements (other than cash dividends) and/or cash proceeds, including proceeds from the sale of rights, securities and other entitlements
  
Up to US$0.05 per Depositary Share held
     
·      Distribution of Depositary Shares pursuant to exercise of rights.
  
Up to US$0.05 per Depositary Share held
     
·      Depositary services
  
Up to US$0.05 annually per Depositary Share held on the applicable record date(s) established by the depositary bank
 
In addition, Depositary Share holders, beneficial owners of Depositary Shares, persons depositing Ordinary Shares for deposit and persons surrendering Depositary Shares for cancellation and withdrawal of deposited securities will be required to pay the following charges:
 
 
·
taxes (including applicable interest and penalties) and other governmental charges;
 
 
·
such registration fees as may from time to time be in effect for the registration of Ordinary Shares or other deposited securities with Midatech’s share registrar and applicable to transfers of Ordinary Shares or other deposited securities to or from the name of the custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively;
 
 
 
·
such cable, telex, facsimile and electronic transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of the person depositing or withdrawing Ordinary Shares or Depositary Share holders and beneficial owners of Depositary Shares;
 
 
·
the expenses, fees and other charges incurred by the Depositary in the conversion of foreign currency, including, without limitation, the expenses, fees and other charges imposed by any affiliate of the Depositary (which may, in its sole discretion, act in a principal capacity in such transaction) that may be utilized in connection therewith;
 
 
·
such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Ordinary Shares, deposited securities, Depositary Shares and American Depositary Receipts;
 
 
·
the fees and expenses incurred by the Depositary in connection with the delivery of deposited securities, including any fees of a central depository for securities in the local market, where applicable; and
 
 
·
any fees, charges, costs or expenses that may be incurred from time to time by the Depositary and/or any of the Depositary’s agents, including the custodian, and/or agents of the Depositary’s agents in connection with the servicing of Ordinary Shares, deposited securities and/or Depositary Shares, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the Depositary’s or its custodian’s compliance with applicable law, rule or regulation (such fees, charges, costs or expenses to be assessed against Depositary Share holders of record as at the date or dates set by the Depositary as it sees fit and collected at the sole discretion of the Depositary by billing such Depositary Share holders for such fee or by deducting such fee from one or more cash dividends or other cash distributions).
 
The Depositary fees payable upon the issuance and cancellation of Depositary Shares are typically paid to the Depositary by the brokers (on behalf of their clients) receiving the newly issued Depositary Shares from the Depositary and by the brokers (on behalf of their clients) delivering the Depositary Shares to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to Depositary Share holders and the Depositary services fee are charged by the Depositary to the holders of record of Depositary Shares as of the applicable Depositary Share record date.
 
The Depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the Depositary charges the applicable fee to the Depositary Share record date holders concurrent with the distribution. In the case of Depositary Shares registered in the name of the investor (whether certificated or uncertificated in direct registration), the Depositary sends invoices to the applicable record date Depositary Share holders. In the case of Depositary Shares held in brokerage and custodian accounts (via The Depository Trust Company (“DTC”)), the Depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the Depositary Share held in DTC) from the brokers and custodians holding Depositary Share in their DTC accounts. The brokers and custodians who hold their clients’ Depositary Shares in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the Depositary.
 
In the event of refusal to pay the Depositary fees, the Depositary may, under the terms of the deposit agreement among Midatech, the Depositary and the holders of Depositary Shares, refuse the requested service until payment is received or may set off the amount of the Depositary fees from any distribution to be made to the  Depositary Share holder.
    
 
126
  
The Depositary has agreed to reimburse Midatech for a portion of certain expenses it incurs that are related to establishment and maintenance of the American Depositary Receipt program, including investor relations expenses. There are limits on the amount of expenses for which the Depositary will reimburse Midatech, but the amount of reimbursement available to Midatech is not related to the amounts of fees the Depositary collects from investors. Further, the Depositary has agreed to reimburse Midatech certain fees payable to the Depositary by holders of Depositary Shares. Neither the Depositary nor Midatech can determine the exact amount to be made available to Midatech because (i) the number of Depositary Shares that will be issued and outstanding, (ii) the level of service fees to be charged to holders of Depositary Shares and (iii) its reimbursable expenses related to the program are not known at this time.
   
Payment of Taxes
 
Holders of Depositary Shares will be responsible for any taxes or other governmental charges payable, or which become payable, on their Depositary Shares or on the deposited securities represented by any of their Depositary Shares. The depositary may refuse to register or transfer the Depositary Shares or allow a holder to withdraw the deposited securities represented by the Depositary Shares until such taxes or other charges are paid. It may apply payments owed to a holder of Depositary Shares or sell deposited securities represented by the Depositary Shares to pay any taxes owed and such holder will remain liable for any deficiency. If the Depositary sells deposited securities, it will, if appropriate, reduce the number of Depositary Shares to reflect the sale and pay to the holder any net proceeds, or send to the holder any property, remaining after it has paid the taxes. Each holder of Depositary Shares agrees to indemnify Midatech, the Depositary, the custodian and each of their respective agents, directors, employees and affiliates for, and hold each of them harmless from, any claims with respect to taxes and additions to tax (including applicable interest and penalties thereon) arising from any refund of taxes, reduced rate of withholding at source or other tax benefit obtained for or by such holder. A holders obligations under this paragraph shall survive any transfer of American Depositary Receipts, any surrender of American Depositary Receipts and withdrawal of deposited securities or the termination of the deposit agreement.
 
 
PART II
 
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
 
Not applicable.
 
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
 
Not applicable.
 
CONTROLS AND PROCEDURES.
 
A.
Disclosure Controls and Procedures
 
Midatech has carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) under the supervision and the participation of the Company’s management, which is responsible for the management of the internal controls, and which includes Midatech’s Chief Executive Officer and Chief Financial Officer (Midatech’s principal executive officer and principal financial officer, respectively). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under 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 the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

            Management of the Company has assessed the effectiveness of internal control over financial reporting as of December 31, 2015. In  management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2015, management concluded that there was a material weakness in the design and operating effectiveness of the Group’s internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.  A description of the identified material weakness in internal control over financial reporting is as follows:

 
●
The deficiency in the design and operating effectiveness of internal controls related to the accounting treatment for a non-routine, complex transaction relating to the fair value of share options and warrants assumed by Midatech being required to be treated as a derivative financial liability rather than as an equity instrument. The assumption of these options and warrants was associated with the acquisition of DARA .
 
The material weakness described above could result in a material misstatement of the consolidated financial statements that would not be prevented or detected. The material weakness described above relates to the complex acquisition transaction undertaken by Midatech in fiscal 2015.
 
With the oversight of senior management and Midatech’s audit committee, and prior to the issuance of the December 31, 2015 financial statements, Midatech has put into place a plan to address the material weakness described above by (a) implementing additional controls and procedures to facilitate senior management and audit committee review in order to remediate the underlying causes of the  material error in Midatech’s financials and (b) seeking outside assistance, as necessary, from third party experts when or if Midatech enters into or effects future, non-routine transactions which involve complex accounting and related disclosure matters.
 
B.
Management ’ s Annual Report on Internal Control Over Financial Reporting
 
This annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established by the rules of the SEC for newly public companies.
 
C.
Attestation Report of the Registered Public Accounting Firm
 
This annual report does not include an attestation report of Midatech’s registered public accounting firm as it is an emerging growth company.
 
D.
Changes in Internal Control Over Financing Reporting
 
Midatech regularly review its system of internal control over financial reporting to ensure it maintain an effective internal control environment. Other than the changes discussed above, there were no changes in Midatech’s internal control over financial reporting that occurred during the fiscal year ended December 31, 2015 that materially affected, or is reasonably likely to materially affect, Midatech’s internal control over financial reporting.
 
 
AUDIT COMMITTEE FINANCIAL EXPERT.
 
The Audit Committee consists of three members: Pavlo Protopapa (Chairman), Simon Turton and John Johnston. The Board of Directors has determined that Messrs. Protopapa, Turton and Johnston are independent under Rule 10A-3 of the Exchange Act and the applicable rules of the NASDAQ Stock Market and that Mr. Protopapa qualifies as an “audit committee financial expert” as defined under in Item 16A of Form 20-F.  
 
CODE OF ETHICS.
 
Midatech’s Code of Business Conduct and Ethics is applicable to all of its employees, officers and directors and is available on our website at http://www.midatechpharma.com. The Code of Business Conduct and Ethics provides that our directors and officers are expected to avoid any action, position or interest that conflicts with the interests of the Company or gives the appearance of a conflict. Midatech’s directors and officers have an obligation under the Code of Business Conduct and Ethics to advance the Company’s interests when the opportunity to do so arises. Midatech expects that any amendment to this code, or any waivers of its requirements, will be disclosed on its website. Information contained on, or that can be accessed through, Midatech’s website is not incorporated by reference into this document, and you should not consider information on the website to be part of this document.
 
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
BDO LLP was engaged as Midatech’s independent registered public accounting firm August 2014 in connection with its preparation for its initial public offering. Prior to that, Critchlelys LLP served as the statutory auditor of Midatech’s predecessor entity, Midatech Limited, for 2013.
 
The following table sets forth by category of service the total fees for services provided by BDO LLP during the fiscal years ended December 31, 2015 and 2014.
 
   
2015
   
2014
 
   
(£’s in thousands)
 
Audit Fees(1)
    674       351  
Audit-Related Fees(2)
    —       —  
Tax Fees(3)
    7       27  
All Other Fees(4)
    —       —  
Total
     681        378  
 
______________
 
 
(1)
Audit fees consist of the aggregate fees billed in connection with the audit of Midatech’s annual consolidated financial statements and internal controls, the issuance of comfort letters, interim reviews of our half-yearly financial information and the listing of the Depositary Shares on NASDAQ .
 
 
(2)
Audit-related fees are fees for services that are traditionally performed by the independent accountants, including consultations concerning financial accounting and reporting, and employee benefit plan audits, and due diligence on mergers or acquisitions.
 
 
(3)
Represents the aggregate fees billed for tax compliance, tax advice and tax consulting services.
 
 
(4)
Represents the aggregate fees billed for all products and services provided that are not included under “audit fees”, “audit related fees or “tax fees,” including, but not limited to, fees billed for services relating to mergers, acquisitions and the listing of Midatech’s Ordinary Shares on AIM.
 
 
Audit Committee Pre-Approval Policies and Procedures
 
The pre-approval of the Audit Committee or member thereof, to whom pre-approval authority has been delegated, is required for the engagement of our independent auditors to render audit or non-audit services. Audit Committee pre-approval of audit and non-audit services will not be required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by the Audit Committee regarding Midatech’s engagement of the independent auditors, provided the policies and procedures are detailed as to the particular service, the Audit Committee is informed of each service provided and such policies and procedures do not include delegation of the Audit Committee’s responsibilities under the Exchange Act to management. Audit Committee pre-approval of non-audit services (other than review and attest services) also will not be required if such services fall within available exceptions established by the SEC.
 
All audit related fees for the fiscal years ended December 31, 2015 and 2014 were pre-approved under the pre-approval policies of the Audit Committee.
 
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
 
Not applicable.
 
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
 
Not applicable.
 
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTS.
 
Information relating to Midatech’s change in its certifying accountant was previously disclosed in its Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended.
 
CORPORATE GOVERNANCE.
 
Companies with securities listed on NASDAQ are required to comply with U.S. federal securities laws, including the Sarbanes-Oxley Act of 2002, as well as certain NASDAQ rules and corporate governance requirements.  As a foreign private issuer, however, Midatech is entitled to follow our home country practice in lieu of the NASDAQ corporate governance standards, subject to certain exceptions and except to the extent that such exemptions would be contrary to U.S. federal securities laws.  The United Kingdom laws and practices followed by Midatech in lieu of NASDAQ rules are described below:
 
 
·
Midatech does not follow NASDAQ’s requirements applicable to independent director oversight of director nominations, which require that director nominees either be selected or recommended by independent directors.  In accordance with United Kingdom law and practice, the Company’s directors are nominated by the Nominations Committee, which is comprised of all of the directors of the company.
 
 
·
Midatech does not follow NASDAQ’s requirement that the compensation committee be comprised of Independent Directors, as defined under Rule 5605(a)(2).  One of the members of Midatech’s compensation committee, Mr. Stahel, is not considered independent under the applicable NASDAQ rule.  He is, however, considered to be independent under United Kingdom law and practice.
 
 
·
Midatech does not require that the compensation committee consider the specific factors affecting consultant independence that are set forth in NASDAQ Rule 5605(d)(3)(D).  Midatech’s compensation committee may engage independent compensation consultants at its discretion.
 
 
·
Midatech does not follow NASDAQ’s requirements that non-executive directors meet on a regular basis without management present.  Midatech’s Board of Directors may choose to meet in executive session at their discretion.
 
 
 
·
Midatech does not follow NASDAQ’s quorum requirements for stockholder meetings.  In accordance with United Kingdom law and practice, Midatech’s Articles of Association provide alternative quorum requirements that are generally applicable to meetings of shareholders.
 
 
·
Midatech does not follow NASDAQ’s requirements to seek shareholder approval for the implementation of certain equity compensation plans and issuances of ordinary shares.  In accordance with the AIM Rules, Midatech is not required to seek shareholder approval in such circumstances.
 
MINE SAFETY DISCLOSURE.
 
Not applicable.
 
 
PART III
 
 
FINANCIAL STATEMENTS.
 
The Company has elected to provide financial statements pursuant to Item 18.
 
 
FINANCIAL STATEMENTS.
 
The financial statements are filed as part of this annual report beginning on page F-1.
 
EXHIBITS.
 
Exhibit
Number
 
Title
   
1.1
Articles of Association of Midatech Pharma PLC (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
2.1
Specimen certificate representing ordinary shares of Midatech Pharma PLC (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
2.2
Form of Deposit Agreement by and among Midatech Pharma PLC, Deutsche Bank Trust Company Americas, as depositary, and all owners and holders from time to time of American Depositary Shares thereunder (incorporated by reference to Exhibit 99A to the Company’s Registration Statement on Form F-6/A (File No. 333-207186), filed with the SEC on October 27, 2015).
2.3
Form of American Depositary Receipt (included in Exhibit 2.2).
2.4
Form of Warrant Assumption Agreement by and between Midatech Pharma PLC and DARA BioSciences, Inc. (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
2.5
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4 to DARA BioSciences, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed with the SEC on May 14, 2010).
2.6
Form of Class B Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.3 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on December 29, 2010).
2.7
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on January 18, 2012).
2.8
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on April 9, 2012).
2.9
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on October 22, 2013).
2.10
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on February 12, 2014).
2.11
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on May 30, 2014).
2.12
Form of “Phase 2b” Common Stock Purchase Warrant issued to General Hospital Corporation d/b/a Massachusetts General Hospital (incorporated by reference to Exhibit 4.1 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on December 15, 2014).
2.13
Form of “FDA Approval” Common Stock Purchase Warrant issued to General Hospital Corporation d/b/a Massachusetts General Hospital (incorporated by reference to Exhibit 4.2 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on December 15, 2014).
 
 
4.1
Form of Contingent Value Rights Agreement by and among Midatech Pharma PLC, DARA BioSciences, Inc., Shareholder Representative Services LLC and American Stock Transfer & Trust Company, LLC, as rights agent (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.2#
Midatech Pharma PLC 2014 Enterprise Management Incentive Scheme (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.3#
Form of Option Agreement (included in Exhibit 4.2).
4.4
Form of Warrant Exchange Agreement dated as of November 28, 2014, by and between Midatech Pharma PLC and certain warrantholders of Midatech Limited (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.5
Nominated Advisor and Broker Agreement, dated as of December 2, 2014, by and between Midatech Pharma PLC and Panmure Gordon (UK) Limited (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.6
Form of Lock-in Agreement, dated as of December 3, 2014, by and among Midatech Pharma PLC, Panmure Gordon (UK) Limited and certain stockholders of Midatech Pharma PLC (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.7
Form of Lock-in Agreement, dated as of December 3, 2014, by and among Midatech Pharma PLC, Panmure Gordon (UK) Limited and certain directors, related parties and employees of Midatech Pharma PLC (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.8
Patent and Know-How Agreement, dated June 21, 2002, as amended on October 14, 2004, by and between Consejo Superior de Investigaciones Cientificas and Midatech Limited (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.9†
Joint Venture Agreement, dated as of December 15, 2011, by and between MonoSol RX LLC and Midatech Limited (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.10
Collaboration and License Agreement dated as of October 27, 2008, by and between MonoSol RX LLC and Midatech Limited (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.11
Research Collaboration Agreement, dated as of February 16, 2012, by and between Middlesex University and Midatech Limited (incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.12
Research Collaboration Agreement, dated as of December 14, 2012, by and between The Open University and Midatech Limited (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.13
Consortium Agreement, dated as of June 25, 2012, by and among Midatech Limited, Cardiff University, Inserm-Transfert SA, Nanopass Technologies Ltd., Leiden University Medical Center, Kings College London, Institut National de la Sante et de la Recherche Medicale, Marseille and Linkopings University (incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.14
Supply Agreement, dated as of July 9, 2013, by and between Q Chip Limited and Nova Laboratories Limited (incorporated by reference to Exhibit 10.16 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.15†
Formulation Feasibility Agreement, dated as of August 12, 2015, by and between Midatech Pharma PLC and Ophthotech Corporation (incorporated by reference to Exhibit 10.24 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.16*† †
Asset Purchase Agreement, dated as of December 17, 2015, by and between Galena Biopharma, Inc. and Midatech Pharma PLC.
 
 
4.17*† †
License and Supply Agreement dated as of July 17, 2014, by and between MonoSol RX, LLC and Galena Biopharma, Inc.
4.18*† †
License and Supply Transfer Agreement dated as of December 16, 2015, by and between MonoSol RX, LLC and Galena Biopharma, Inc.
4.19*† †
Distribution and Licence Agreement dated as of September 7, 2012, by and between Helsinn Healthcare SA and DARA BioSciences, Inc.
4.20*† †
Commercialization Agreement dated as of March 9, 2015, by and between Onxeo S.A. and DARA BioSciences, Inc.
4.21*† †
Master Service Agreement, dated as of October 25, 2013, by and between DARA Biosciences, Inc. and Alamo Pharma Services, Inc. including the Sales Representative Sharing Agreement by and among DARA Biosciences Inc., Alamo Pharma Services, Inc. and Mission Pharmacal Company (attached as Exhibit A), and the Co-Promotion Agreement by and among DARA BioSciences, Inc., Alamo Pharma Services, Inc. and Mission Pharmacal Company (attached as Attachment B) (incorporated by reference to Exhibit 10.1 to DARA BioSciences, Inc.’s Quarterly Report on Form 10-Q, as filed with the SEC on November 13, 2013).
4.22#
Consultancy Agreement, dated as of April 15, 2014, by and between Midatech Limited and Chesyl Pharma Limited (incorporated by reference to Exhibit 10.17 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.23#
Service Agreement dated as of December 3, 2014, by and between Midatech Pharma PLC and Dr. James Phillips (incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.24#
Service Agreement dated as of December 3, 2014, by and between Midatech Pharma PLC and Nicholas Robbins-Cherry (incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.25*#
Executive Employment Agreement dated as of January 1, 2016, by and between Midatech Pharma US, Inc. and David Benharris.
4.26#
Appointment Agreement, dated as of April 15, 2014, by and between Midatech Limited and Rolf Stahel (incorporated by reference to Exhibit 10.20 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.27#
Revised Appointment Agreement, dated as of December 2, 2014, by and between Midatech Pharma PLC and Rolf Stahel (incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.28#
Form of Appointment Letter between Midatech Pharma PLC and certain directors of Midatech Pharma PLC (incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.29#
Deed of Indemnity dated August 5, 2015 (incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.30*# Contract of Employment dated September 1, 2014 by and between Midatech Limited and Craig Cook.
8.1*
Subsidiaries of Midatech Pharma PLC
12.1*
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
12.2*
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
13.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
15.1*
Consent of BDO LLP.
___________
* Filed herewith.
# Management contract or compensatory plan or arrangement.
† Confidential treatment has been granted as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.
† † Confidential treatment has been requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.
 
 
 
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
 
 
MIDATECH PHARMA PLC
 
 
(Registrant)
 
       
 
By:
/s/ James N. Phillips
 
 
Name:    
James N. Phillips
 
 
Title:
Chief Executive Officer
 
 
 
Date: April 13, 2016
 
MIDATECH PHARMA PLC

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


 

 
Board of Directors and Shareholders
Midatech Pharma PLC
Abingdon, United Kingdom
 
We have audited the accompanying consolidated statements of financial position of Midatech Pharma PLC and its subsidiaries as at 31 December 2015, 2014 and 2013 and the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the three years in the period ended 31 December 2015. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.  We believe that our audits provide a reasonable basis for our opinion.
 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Midatech Pharma PLC at 31 December 2015, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended 31 December 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
 
/s/ BDO LLP

BDO LLP
Reading, United Kingdom
13 April 2016

Midatech Pharma PLC

for the years ended 31 December 2015, 2014 and 2013
 
 
 
   
Note
   
2015
   
2014
   
2013
 
          £'000    
£'000
   
£'000
 
                           
Revenue
    3       775       25       147  
Grant revenue
            600       132       -  
Total revenue
            1,375       157       147  
                                 
Cost of sales
            (70 )     -       -  
Gross profit
            1,305       157       147  
                                 
Research and development costs
            (5,920 )     (5,439 )     (2,840 )
Distribution costs, sales and marketing
            (374 )     -       -  
                                 
Administrative costs
    4       (7,929 )     (4,665 )     (1,806 )
Loss from operations
            (12,918 )     (9,947 )     (4,499 )
                                 
Finance income
    6       1,691       8       1  
Finance expense
    6       (5 )     (161 )     (385 )
Loss before tax
            (11,232 )     (10,100 )     (4,883 )
                                 
Taxation
    7       1,133       1,018       799  
Loss after tax attributable to the owners of the parent
            (10,099 )     (9,082 )     (4,084 )
Other comprehensive income:
                               
                                 
Items that will or may be reclassified subsequently to profit
or loss when specific conditions are met:
                               
Exchange (losses)/gains arising on translation of foreign
operations
            399       (151 )     5  
Total other comprehensive income/(loss), net of tax
            399       (151 )     5  
                                 
Total comprehensive loss attributable to the owners of
the parent
            (9,700 )     (9,233 )     (4,079 )
Loss per share
                               
Basic and diluted loss per ordinary share - pence
    8       (36p )     (101p )     (71p )

The notes form an integral part of these consolidated financial statements
 
Midatech Pharma PLC

at 31 December 2015, 2014 and 2013
 
 
   
Note
   
2015
   
2014
   
2013
 
Assets
       
£’000
   
£’000
   
£’000
 
Non-current assets
                       
Property, plant and equipment
    9       1,984       1,516       684  
Intangible assets
    10       41,339       13,094       4  
Investment in equity accounted joint venture
            -       -       12  
Other receivables due in greater than one year
    17       387       425       379  
              43,710       15,035       1,079  
Current assets
                               
Inventories
    19       459       -       -  
Trade and other receivables
    17       2,496       462       909  
Taxation
            1,201       841       799  
Cash and cash equivalents
    18       16,175       30,325       2,387  
              20,331       31,628       4,095  
Total assets
            64,041       46,663       5,174  
Liabilities
                               
Non-current liabilities
                               
Borrowings
    21       1,508       1,488       2,119  
Deferred tax liability
    24       6,547       354       -  
              8,055       1,842       2,119  
Current liabilities
                               
Trade and other payables
    20       7,084       2,341       1,047  
Borrowings
    21       442       491       1,248  
Derivative financial liability – equity settled
    22       1,573       -       -  
              9,099       2,832       2,295  
Total liabilities
            17,154       4,674       4,414  
                                 
Issued capital and reserves attributable to owners of the
parent
                               
Share capital
    25       1,002       1,001       -  
Share premium
    26       31,643       31,643       21,018  
Merger reserve
    26       52,803       37,776       -  
Shares to be issued
    26       200       800       -  
Foreign exchange reserve
    26       390       (9 )     142  
Accumulated deficit
    26       (39,151 )     (29,222 )     (20,400 )
Total equity
            46,887       41,989       760  
Total equity and liabilities
            64,041       46,663       5,174  

The financial statements were approved and authorised for issue by the Board of Directors on 13 April 2016 and were signed on its behalf by:

/s/ Nicholas Robbins-Cherry
Nicholas Robbins-Cherry
Chief Financial Officer
 
The notes form an integral part of these consolidated financial statements

Midatech Pharma PLC

for the years ended 31 December 2015, 2014 and 2013
 
 
   
Note
   
2015
   
2014
   
2013
 
         
£’000
   
£’000
   
£’000
 
Cash flows from operating activities
                       
Loss for the year after tax
          (10,099 )     (9,082 )     (4,084 )
Adjustments for:
                             
Depreciation of property, plant and equipment
    9       501       321       246  
Amortisation of intangible fixed assets
    10       236       1       1  
Loss on disposal of fixed assets
            -       89       -  
Net Interest (income)/expense
            (1,686 )     153       384  
Impairment of IPRD
            -       1,800       -  
Gain on bargain purchase
    13       (165 )     -       -  
Share based payment expense
            170       260       -  
Taxation
            (1,133 )     (1,018 )     (799 )
Cash flows from operating activities before changes in
working capital
            (12,176 )     (7,476 )     (4,252 )
Increase in inventories
            (62 )     -       -  
(Increase)/decrease in trade and other receivables
            (1,540 )     761       (442 )
Increase/(decrease) in trade and other payables
            711       466       (330 )
Cash used in operations
            (13,067 )     (6,249 )     (5,024 )
Taxes received
            646       794       588  
Net cash used in operating activities
            (12,421 )     (5,455 )     (4,436 )
Investing activities
                               
Purchases of property, plant and equipment
            (922 )     (1,030 )     (47 )
Purchase of intangibles
            (3 )     -       (3 )
Acquisition of subsidiary, net of cash acquired
    12       1,867       115       -  
Acquisition of business, net of cash acquired
    13       (2,528 )     -       -  
Interest received
            53       8       -  
Net cash used in investing activities
            (1,533 )     (907 )     (50 )
Financing activities
                               
Interest paid
            (5 )     (48 )     (15 )
Payments to finance lease creditors
            (49 )     (48 )     (93 )
Repayment of borrowings
            (165 )     (346 )     (200 )
Issue of convertible debt
            -       -       1,251  
Loan finance raised
            -       890       -  
Share issues net of costs
            -       33,852       5,797  
Net cash (used in)/generated from financing activities
            (219 )     34,300       6,740  
Net (decrease)/increase in cash and cash equivalents
            (14,173 )     27,938       2,254  
Cash and cash equivalents at beginning of year
            30,325       2,387       133  
Exchange gains on cash and cash equivalents
            23       -       -  
Cash and cash equivalents at end of year
    18       16,175       30,325       2,387  

The notes form an integral part of these consolidated financial statements .
 
Midatech Pharma PLC

for the years ended 31 December 2015, 2014 and 2013
 
 
   
Share
capital
   
Share
premium
   
Merger reserve
   
Shares to be
issued
   
Foreign
exchange
reserve
   
Accumulated
deficit
   
Total
equity
 
   
£'000
   
£'000
    £ ’000     £ ’000    
£'000
   
£'000
   
£'000
 
                                               
At 1 January 2015
    1,001       31,643       37,776       800       (9 )     (29,222 )     41,989  
Loss for the year
    -       -       -       -       -       (10,099 )     (10,099 )
Foreign exchange translation
    -       -       -       -       399       -       399  
Total comprehensive loss
    -       -       -       -       399       (10,099 )     (9,700 )
Transactions with owners
                                                       
                                                         
Shares issued on exercise of
share options
    1       -       -       -       -       -       1  
Shares, warrants and share
options issued as consideration
for a business combination – 4
December 2015
    -       -       14,427       -       -       -       14,427  
Share option charge
    -       -       -       -       -       170       170  
                                                         
Shares issued as deferred
consideration for business
combination
    -       -       600       (600 )     -       -       -  
Total contribution by and
distributions to owners
    1       -       15,027       (600 )     -       170       14,598  
At 31 December 2015
    1,002       31,643       52,803       200       390       (39,151 )     46,887  

Midatech Pharma PLC

Consolidated statements of changes in equity
for the years ended 31 December 2015, 2014 and 2013
 
 
   
Share
capital
   
Share
premium
   
Merger reserve
   
Shares to be
issued
   
Foreign
exchange
reserve
   
Accumulated
deficit
   
Total
Equity
 
   
£'000
   
£'000
      £’000    
£'000
   
£'000
   
£'000
   
£'000
 
                                             
At 1 January 2014
    -       21,018       -       -       142       (20,400 )     760  
                                                         
Loss for the year
    -       -       -       -       -       (9,082 )     (9,082 )
Foreign exchange translation
    -       -       -       -       (151 )     -       (151 )
Total comprehensive loss
    -       -       -       -       (151 )     (9,082 )     (9,233 )
Issue of Midatech Limited shares - pre-share for
share exchange
    -       3,202       -       -       -       -       3,202  
Transfer to merger reserve on the merger of
Midatech Pharma plc and Midatech Limited – 31
October 2014
    -       (24,220 )     24,220       -       -       -       -  
Transfer of A Preference shares from liability to
equity (28 October 2014) and subsequent
conversion to Deferred shares – 8 December 2014
    1,000       -       -       -       -       -       1,000  
Issue of shares to settle A Preference share
accrued dividend – 8 December 2014
    -       994       -       -       -       -       994  
Shares issued as consideration for a business
combination – 8 December 2014
    -       -       13,556       -       -       -       13,556  
Shares to be issued as consideration for a business
combination – 8 December 2014
    -       -       -       800       -       -       800  
Issue of shares on placing – 8 December 2014
    1       32,000       -       -       -       -       32,001  
Costs associated with share placing
    -       (1,351 )     -       -       -       -       (1,351 )
Share based payment
    -       -       -       -       -       260       260  
Total contribution by and distributions to
owners
    1,001       10,625       37,776       800       -       260       50,462  
At 31 December 2014
    1,001       31,643       37,776       800       (9 )     (29,222 )     41,989  
  
Midatech Pharma PLC

Consolidated statements of changes in equity
for the years ended 31 December 2015, 2014 and 2013
 
 
   
Share
capital
   
Share
premium
   
Merger reserve
   
Shares to be
issued
   
Foreign
exchange
reserve
   
Accumulated
deficit
   
Total
Equity
 
   
£'000
   
£'000
    £ ’000     £ ’000    
£'000
   
£'000
   
£'000
 
                                               
                                               
1 January 2013
    -       11,966       -       -       137       (17,194 )     (5,091 )
                                                         
Loss for the year
    -       -       -       -       -       (4,084 )     (4,084 )
Foreign exchange translation
    -       -       -       -       5       -       5  
Total comprehensive income/(loss)
    -       -       -       -       5       (4,084 )     (4,079 )
Transaction with owners
                                                       
                                                         
Conversion of convertible loan notes
    -       -       -       -       -       584       584  
Issue of shares
    -       9,093       -       -       -       -       9,093  
Cost of share issues
    -       (41 )     -       -       -       -       (41 )
Capital contribution
    -       -       -       -       -       294       294  
Total contribution by and distributions to
owners
    -       9,052       -       -       -       878       9,930  
31 December 2013
    -       21,018       -       -       142       (20,400 )     760  

The notes form an integral part of these consolidated financial statements .
 
 
F-8

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013


1 
Accounting policies

General information

Midatech Pharma PLC (the “Company”) is a company domiciled in England. The Company was incorporated on 12 September 2014.

The Company is a public limited company, which has been listed on the Alternative Investment Market (“AIM”), which is a submarket of the London Stock Exchange, since 8 December 2014.

In addition, since the fourth quarter of 2015, the Company has American Depositary Receipts (“ADRs”), and the ordinary shares underlying such ADRs, registered with the US Securities and Exchange Commission (“SEC”). The  ADRs are listed on the NASDAQ Capital Market.

Basis of preparation

The Group was formed on 31 October 2014 when Midatech Pharma PLC entered into an agreement to acquire the entire share capital of Midatech Limited and its wholly owned subsidiaries through the issue equivalent of shares in the Company which took place on 13 November 2014.

Accordingly, although the units which comprise the Group did not form a legal group for the entire comparative period ended 31 December 2014, the 2014 and 2013 results comprise the results of the subsidiary companies as if the Group had been in existence throughout the entire period.

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (“adopted IFRSs”) and are presented in £’000’s Sterling.

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the periods presented.

Adoption of new and revised standards

A number of new standards, amendments to standards, and interpretations are not effective for 2015, and therefore have not been applied in preparing these accounts.
 
IFRS 9 Financial Instruments and subsequent amendments

On 24 July 2014 the IASB published the complete version of IFRS 9, Financial instruments, which replaces most of the guidance in IAS 39. This includes amended guidance for the classification and measurement of financial assets by introducing a fair value through other comprehensive income category for certain debt instruments. It also contains a new impairment model which will result in earlier recognition of losses. No changes were introduced for the classification and measurement of financial liabilities, except for the recognition of changes in own credit risk in other comprehensive income for liabilities designated at fair value through profit or loss. IFRS 9 also includes a new hedging guidance. It will be effective for annual periods beginning on or after 1 January 2018. IFRS 9 is subject to endorsement by the European Union.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 specifies how and when a company will recognize revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles-based five-step model to be applied to all contracts with customers as follows:
 
 
• 
Identify the contract(s) with a customer;
 
 
• 
Identify the performance obligations in the contract;
 
 
• 
Determine the transaction price;
 
 
• 
Allocate the transaction price to the performance obligations in the contract; and
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
 
• 
Recognize revenue when (or as) the entity satisfies a performance obligation.

IFRS 15 was issued in May 2014 and replaces IAS 11—Construction Contracts, IAS 18—Revenue, IFRIC 13—Customer Loyalty Programmes, IFRIC 15—Agreements for the Construction of Real Estate, IFRIC 18—Transfers of Assets from Customers and SIC 31—Revenue—Barter Transactions involving Advertising Services. The IASB has voted to publish an Exposure Draft proposing a one-year deferral of the effective date of the revenue Standard to 1 January 2018. The reason for deferring the effective date is that the IASB is planning to issue an Exposure Draft with proposed clarifications to the Standard, stemming from the joint Transition Resource Group (TRG) meetings, as well as the desire to keep the effective date of the IASB’s and the FASB’s revenue Standards aligned. Earlier adoption is permitted. IFRS 15 is subject to endorsement by the European Union.

IFRS 16, Leases

On January 13, 2016, the IASB issued IFRS 16, Leases, which provides lease accounting guidance. Under the new guidance, lessees will be required to present right-of-use assets and lease liabilities on the statement of financial position. At the lease commencement date, a lessee is required to recognize a lease liability, which is the lessee's discounted obligation to make lease payments arising from a lease, as well as a right of use asset, representing the lessee's right to use, or control the use of, a specified asset for the lease term. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019. It is subject to endorsement by the European Union.

Earlier application is permitted for entities that apply IFRS 15, Revenue from Contracts with Customers, at or before the initial application of IFRS 16.

The Directors are currently reviewing the impact of the above-mentioned Standards and Interpretations and are yet to conclude on whether any such standards will have a significant impact on the financial statements of the Group in the year of initial application.

The other standards, interpretations and amendments issued by the IASB (of which some still subject to endorsement by the European Union), but not yet effective are not expected to have a material impact on the Group’s future consolidated financial statements.

Basis of consolidation

Adoption of the other standards and interpretations referred to above is not expected to have a material impact on the results of the company. Application of these standards may result in some changes in presentation of information within the company’s financial statements.

The Group financial statements consolidate those of the parent company and all of its subsidiaries. The parent controls a subsidiary if it has power over the investee to significantly direct the activities, exposure, or rights, to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect the amount of the investor’s returns. All subsidiaries have a reporting date of 31 December.

All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-Group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

The loss and other comprehensive income of Midatech Pharma US, Inc. (formerly DARA Biosciences, Inc.) acquired during the year are recognised from the effective date of acquisition i.e. 4 December 2015.  Similarly the loss and other comprehensive income of Zuplenz ® acquired as a business by Midatech Pharma PLC is recognised from 24 December 2015.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
The consolidated financial statements consist of the results of the following entities:

Entity
Summary description
Midatech Pharma PLC
Ultimate holding company
Midatech Limited
Trading company
Midatech Pharma (Espana) SL (formerly Midatech Biogune SL)
Trading company
Midatech Andalucia SL
Dormant
PharMida AG
Trading company
Midatech Pharma (Wales) Limited (formerly Q Chip Limited)
Trading company
Midatech Pharma US, Inc. (formerly DARA Biosciences, Inc.)
Trading company
Dara Therapeutics, Inc.
Dormant
Midatech Pharma Pty
Trading company

Revenue

The Group’s income streams include milestone income from research and development contracts and the sale of goods. Milestone income is recognised as revenue in the accounting period in which the milestones are achieved. Milestones are agreed on a project by project basis and will be evidenced by set deliverables.

Revenue from the sales of goods by Midatech Pharma US, Inc. is recognised when the significant risks and rewards of ownership are transferred to the buyer and it is probable the previously agreed upon payment will be received. These criteria are considered to be met when the goods are delivered to the buyer.

Sales to wholesalers provide for selling prices that are fixed on the date of sale, although Midatech Pharma US, Inc. offers certain discounts to group purchasing organisations and governmental programs.  The wholesalers take title to the product, bear the risk and rewards and have ownership of the inventory. The Group has sufficient experience with their material wholesaler distribution channel to reasonably estimate product returns from its wholesalers while the wholesalers are still holding inventory.

Grant revenue

Where grant income is received which is not a direct re-imbursement of related costs and at the point at which the conditions have been met for recognition as income, these have been shown within grant revenue.

Government grants and government loans

Where government grants are received as a re-imbursement of directly related costs they are credited to research and development expense in the same period as the expenditure towards which they are intended to contribute.

The Group receives government loans that have a below-market rate of interest. These loans are recognised and measured in accordance with IAS 39. The benefit of the below-market rate of interest is measured as the difference between the initial carrying value of the loan discounted at a market rate of interest and the proceeds received.

The difference is held within deferred revenue as a government grant and is released as a credit to research and development expense in line with the expenditure to which it relates. In a situation where the proceeds were invested in plant and equipment, the deferred revenue is credited to research and development within the income statement in line with the depreciation of the acquired asset.

Business combinations and externally acquired intangible assets

Business combinations are accounted for using the acquisition method at the acquisition date, which is the date at which the Group obtains control over the entity. The cost of an acquisition is measured as the amount of the consideration transferred to the seller, measured at the acquisition date fair value, and the amount of any non-controlling interest in the acquiree. The Group measures goodwill initially at cost at the acquisition date, being:

 
·
the fair value of the consideration transferred to the seller, plus

 
·
the amount of any non-controlling interest in the acquiree, plus
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
 
·
if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree re-measured at the acquisition date, less
 
 
·
the fair value of the net identifiable assets acquired and assumed liabilities.
Acquisition costs incurred are expensed and included in administrative costs. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration, whether it is an asset or liability, will be recognised either as a profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not re-measured.

An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. The asset is deemed to be identifiable when it is separable or when it arises from contractual or other legal rights.

Externally acquired intangible assets other than goodwill are initially recognised at cost and subsequently amortised on a straight line basis over their useful economic lives where they are in use. The amortisation expense is included within the administrative cost in the consolidated statement of comprehensive income. Goodwill is stated at cost less any accumulated impairment losses.

The amounts ascribed to intangibles recognised on business combinations are arrived at by using appropriate valuation techniques (see section related to critical estimates and judgements below).

In-process research and development (IPRD) programmes acquired in business combinations are recognised as assets even if subsequent expenditure is written off because the criteria specified in the policy for development costs below are not met.  IPRD is subject to annual impairment testing until the completion or abandonment of the related project.  No further costs are capitalised in respect of this IPRD unless they meet the criteria for research and development capitalisation as set out below.

As per IFRS 3, once the research and development of each defined project is completed, the carrying value of the acquired IPRD is reclassified as a finite-lived asset and amortised over its useful life.

Product and marketing rights acquired in business combinations are recognised as assets and are amortised over their useful life. Under the terms of various licenses, the Group holds the US rights to sell three products approved by the United States Food and Drug Administration: Zuplenz, Oravig and Soltamox.

The significant intangibles recognised by the Group and their useful economic lives are as follows:
 
Goodwill
- Indefinite life
IPRD
-
In process, not yet amortising
IT and website costs
-
4 years
Product and marketing rights
-
Between 2 and 13 years
 
The useful economic life of IPRD will be determined when the in-process research projects are completed.

Internally generated intangible assets (development costs)

Expenditure on the research phase of an internal project is recognised as an expense in the period in which it is incurred. Development costs incurred on specific projects are capitalised when all the following conditions are satisfied:

 
·
Completion of the asset is technically feasible so that it will be available for use or sale;

 
·
The Group intends to complete the asset and use or sell it;

 
·
The Group has the ability to use or sell the asset and the asset will generate probable future economic benefits (over and above cost);

 
·
There are adequate technical, financial and other resources to complete the development and to use or sell the asset, and
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
 
·
The expenditure attributable to the asset during its development can be measured reliably.
 
Judgement is applied when deciding whether the recognition criteria are met. Judgements are based on the information available. In addition, all internal activities related to the research and development of new projects are continuously monitored by the Directors.  The Directors consider that the criteria to capitalise development expenditure are not met for a product prior to that product receiving regulatory approval in at least one country.

Development expenditure not satisfying the above criteria, and expenditure on the research phase of internal projects are included in research and development costs recognised in the Consolidated Statement of Comprehensive Income as incurred. No projects have yet reached the point of capitalisation.

Impairment of non-financial assets

Assets that have an indefinite useful life, for example goodwill, or intangible assets not ready for use, such as IPRD, are not subject to amortisation and are tested annually for impairment.  Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.  The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.  An impairment charge of £1.8m was recognised in 2014 against the IPRD of Midatech Pharma (Wales) Limited cash generating unit.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The group at 31 December 2015 had two cash generating units (2014: One, 2013: None), see note 14. Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of impairment at each reporting date.

Impairment charges are included in profit or loss, except, where applicable, to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

Patents and trademarks

The costs incurred in establishing patents and trademarks are either expensed or capitalised in accordance with the corresponding treatment of the development expenditure for the product to which they relate.

Joint arrangements

The Group is a party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.

The Group classifies its interests in joint arrangements as either:

 
·
Joint ventures: where the Group has rights to only the net assets of the joint arrangement; or

 
·
Joint operations: where the Group has both the rights to assets and obligations for the liabilities of the joint arrangement.

In assessing the classification of interests in joint arrangements, the Group considers:

 
·
The structure of the joint arrangement;

 
·
The legal form of joint arrangements structured through a separate vehicle;

 
·
The contractual terms of the joint arrangement agreement; and

 
·
Any other facts and circumstances (including any other contractual arrangements).

The Group accounts for its interests in joint ventures using the equity method. The equity accounted joint venture is highly immaterial with a profit and loss impact of only £Nil during 2015 (2014: £12k, 2013: £67k).
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
Any premium paid for an investment in a joint venture above the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in joint venture. Where there is objective evidence that the investment in a joint venture has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

Amounts received under collaborative joint agreements, representing contributions to the Group’s research and development programmes, are recognised as a credit against research and development expense in the period over which the related costs are incurred. All costs related to these collaborative agreements are recorded as research and development expenditure.

The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations.

Foreign currency

Transactions entered into by subsidiaries entities in a currency other than the currency of the primary economic environment, in which they operate, are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.

The functional currency of the Company is Pounds Sterling, and the reporting currency is also Pounds Sterling. Foreign subsidiaries use the local currencies of the country where they operate. On consolidation, the results of overseas operations are translated into Pounds Sterling at rates approximating to those ruling when the transactions took place.  All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.

Exchange differences recognised in the profit or loss of Group entities on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified to other comprehensive income and accumulated in the foreign exchange reserve on consolidation.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.

Financial assets

The Group does not have any financial assets which it would classify as fair value through profit or loss, available for sale or held to maturity. Therefore, all financial assets are classed as loans and receivables as defined below.

Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset.  They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.

For trade receivables, which are reported net; such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income.  On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.

Cash and cash equivalents include cash in hand, deposits held at call with original maturities of three months or less.

Financial liabilities

The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired.

Fair value through profit and loss (“FVTPL”)

The Group assumed fully vested warrants and share options on the acquisition of DARA Biosciences, Inc. The number of ordinary shares to be issued when exercised is fixed, however the exercise prices are denominated in US Dollars being different to the functional currency of the parent company. Therefore, the warrants and share options are classified as equity settled derivative financial liabilities through the profit and loss account. The financial liabilities were valued using the Black-Scholes option pricing model. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporated any interest paid on the financial liability and is included in the ‘other gains and losses’ line item in the income statement. Fair value is determined in the manner described in note 23.

Other financial liabilities include the following items:

 
·
Borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument.  Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position.  Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

 
·
Government loans received on favourable terms below market rate are discounted at a market rate of interest. The difference between the present value of the loan and the proceeds is held as a government grant within deferred revenue and is released to research and development expenditure in line with when the asset or expenditure is recognised in the income statement.

 
·
Redeemable preference shares are classified as liabilities as they accrued fixed interest payable in cash when distributable profits are available and confer no right to assets or equity distributions of the Company.

 
·
Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Share capital

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Group has two classes of share in existence:

 
·
Ordinary shares of £0.00005 each are classified as equity instruments; and

 
·
Deferred shares of £1 each are classified as equity instruments.

Retirement benefits: defined contribution schemes

Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
Share-based payments
 
The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

 
·
including any market performance conditions (including the share price);

 
·
excluding the impact of any service and non-market performance vesting conditions (for example, remaining an employee of the entity over a specified time period); and

 
·
including the impact of any non-vesting conditions (for example, the requirement for employees to save).

Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. Where vesting conditions are accelerated on the occurrence of a specified event, such as a change in control or initial public offering, such remaining unvested charge is accelerated to the income statement.

In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

Leased assets

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a "finance lease"), the asset is treated as if it had been purchased outright.  The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease.  The corresponding lease commitment is shown as a liability.  Lease payments are analysed between capital and interest.  The interest element is charged to the consolidated statement of comprehensive income over the period of the lease and is calculated so that it represents a constant proportion of the lease liability.  The capital element reduces the balance owed to the lessor.

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term.  The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
Deferred taxation

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

 
·
the initial recognition of goodwill;

 
·
the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

 
·
investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax assets or liabilities are recovered or settled.

Shares to be issued

Deferred consideration shares of 299,624 ordinary shares were to be issued to the sellers of Midatech Pharma (Wales) Limited in two tranches; 224,718 were issued on 8 December 2015 and 74,906 are to be issued on 30 June 2016 as part consideration for the acquisition of 100% of the share capital.  The number of shares will be revised downwards following any warranty claims not considered as part of the purchase price.

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost.  As well as the purchase price, cost includes directly attributable costs.

Depreciation is provided on all items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives.  It is provided at the following rates:
 
Fixtures and fittings
-
25% per annum straight line
Leasehold improvements
-
10% per annum straight line
Computer equipment
-
25% per annum straight line
Laboratory equipment
-
15% per annum straight line

Inventories

Inventories are stated at the lower of cost or net realisable value. Net realisable value is the market value. In evaluating whether inventories are stated at the lower of cost or net realisable value, management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time required to sell such inventory, remaining shelf life, and current and expected market conditions, including levels of competition.

If net realisable value is lower than the carrying amount a write down provision is recognised for the amount by which the carrying value exceeds its net realisable value.
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
2 
Critical accounting estimates and judgements

The preparation of these consolidated financial statements requires the Group to make estimates, assumptions and judgments that can have a significant impact on the reported amounts of assets and liabilities, revenue and expenses and related disclosure of contingent assets and liabilities, at the respective dates of our financial statements. The Group bases our estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management evaluates estimates, assumptions and judgments on a regular basis and makes changes accordingly, and discusses critical accounting estimates with the board of Directors.
 
The following are considered to be critical accounting policies because they are important to the portrayal of the financial condition or results of operations of the group and they require critical management estimates and judgments about matters that are uncertain.

Business combinations

The Directors determine and allocate the purchase price of an acquired business to the assets acquired and liabilities assumed as of the business combination date. The purchase price allocation process requires the use of significant estimates and assumptions, including the estimated fair value of the acquired intangible assets.

While the Directors use their best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the date of acquisition, our estimates and assumptions are inherently uncertain and subject to refinement. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

 
·
future expected cash flows from in-process research and development;

 
·
the fair value of the property, plant and equipment; and

 
·
discount rates.

Judgement has also been applied in the distinction of an asset purchase and business combination with regard to the Zuplenz acquisition. Judgement was applied in assessing the inputs, processes and outputs relevant to the acquisition to arrive at the conclusion that the treatment should be a business combination.

Impairment of goodwill and intangible assets not yet ready for use

Goodwill and intangibles not yet ready for use are tested for impairment at the cash generating unit level on an annual basis at the year end and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a cash generating unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.

Application of the goodwill impairment test requires judgment, including the identification of cash generating units, assignment of assets and liabilities to such units, assignment of goodwill to such units and determination of the fair value of a unit and for intangible assets not yet ready for use the fair value of the asset. The fair value of each cash generating unit or asset is estimated using the income approach, on a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the business, estimation of the useful life over which cash flows will occur and determination of our weighted-average cost of capital. The carrying value of our goodwill was £10.8 million and intangibles not yet ready for use was £12.5 million, respectively, as at 31 December 2015.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
The estimates used to calculate the fair value of a cash generating unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each such unit. Based on the analysis performed, there was no impairment in the year ended 31 December 2015 for goodwill or in-process research and development intangibles. An impairment charge of £1.8m was recognised against the IPRD of the MIdatech Pharma (Wales) Limited cash generating unit in the year ended 31 December 2014.

Share-based payments

The Group accounts for share-based payment transactions for employees in accordance with IFRS 2 Share-based payment, which requires us to measure the cost of employee services received in exchange for the options on our ordinary shares, based on the fair value of the award on the grant date.

The Directors selected the Black-Scholes-Merton option pricing model as the most appropriate method for determining the estimated fair value of our share-based awards without market conditions. For performance-based options that include vesting conditions relating to the market performance of our ordinary shares, a Monte Carlo pricing model was used in order to reflect the valuation impact of price hurdles that have to be met as conditions to vesting.

The resulting cost of an equity incentive award is recognised as expense over the requisite service period of the award, which is usually the vesting period. Compensation expense is recognised over the vesting period using the straight-line method and classified in the consolidated statements of comprehensive income.

The assumptions used for estimating fair value for share-based payment transactions are disclosed in Note 29 to our consolidated financial statements and are estimated as follows:

 
·
Volatility is estimated based on the average annualized volatility of a number of publicly traded peer companies in the biotech sector.

 
·
The estimated life of the option is estimated to be until the first exercise period, which is typically the month after the option vests.

 
·
The dividend return is estimated by reference to our historical dividend payments. Currently, this is estimated to be zero as no dividend has been paid in the prior periods.

Income Taxes

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

In 2015, there were £23.29million (2014 - £16.02 million, 2013 - £13.00 million) of gross unutilised tax losses carried forward.  No deferred tax asset has been provided in respect of these losses as there was insufficient evidence to support their recoverability in future periods.

Intangible asset recognition

Research and development costs are charged to expense as incurred and are typically made up of salaries and benefits, clinical and preclinical activities, drug development and manufacturing costs, and third-party service fees, including for clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials, are periodically recognised based on an evaluation of the progress to completion of specific tasks using data such as patient enrolment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued expenses.
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
3 
Segment Information

Revenue

Geographical analysis of revenue by destination of customer
 
   
2015
   
2014
   
2013
 
      £’000    
£'000
   
£'000
 
United Kingdom
   
-
     
25
      -  
Turkey
   
73
     
-
     
-
 
Austria
    25       -       -  
United States
    677       -       147  
      775       25       147  

One customer in respect of pipeline R&D accounts for 11% of revenue in 2015. In 2014 and 2013 no meaningful analysis of sales could be made.

Following the acquisition of Midatech Pharma US, Inc., the Group contains two reportable operating segments as follows:

 
·
Pipeline Research and Development: The Pipeline Research and Development (“Pipeline R&D”) segment seeks to develop products using the Group’s nanomedicine and sustained release technology platforms.

 
·
Commercial: The Commercial segment distributes and sells the Group’s commercial products. Midatech Pharma US promotes the Group’s commercial, cancer supportive care products in the US market, in which the Group has exclusive licenses to Soltamox, Oravig and Zuplenz, an exclusive license to distribute, promote and market Gelclair, and a marketing agreement to co-promote two other products: Ferralet 90 and Aquoral. As and when new products are introduced the Commercial segment will include revenues from the marketing of these commercial products.

The accounting policies of the reportable segments are consistent with the Group’s accounting policies described in note 1. Segment result represents the result of each segment without the allocation of head office expenses, interest expense, interest income and tax.

No measures of segment assets and segment liabilities are reported to the Group’s Board of Directors in order to assess performance and allocate resources. There is no intersegment activity and all revenue is generated from external customers.

Both the United Kingdom and Spanish entities meet the aggregation criteria and have therefore been presented as a single reportable segment under Pipeline R&D. The research and development activities involve the discovery and development of pharmaceutical products in the field of nanomedicine and sustained release technology. Midatech Pharma US, Inc. is engaged in the sale and marketing of cancer supportive care products and is reported under the Commercial segment.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
Segmented results for the year ended 31 December 2015

   
Pipeline R&D
   
Commercial
   
Unallocated
Costs (1)
   
Consolidated
 
    £ ’000     £ ’000     £ ’000     £ ’000  
                                 
Revenue
    273       502       -       775  
Grant revenue
    600       -       -       600  
Total revenue
    873       502       -       1,375  
                                 
Cost of sales
    -       (70 )     -       (70 )
Research and development costs
    (5,811 )     (109 )     -       (5,920 )
Distribution costs, sales and marketing
    -       (374 )             (374 )
Other administrative costs
    (3,983 )     (218 )     (2,991 )     (7,192 )
Depreciation
    (500 )     (1 )     -       (501 )
Amortisation
    (5 )     (231 )     -       (236 )
Segmental result/operating loss
    (9,426 )     (501 )     (2,991 )     (12,918 )
Finance income
                            1,691  
Finance expense
                            (5 )
Loss before tax
                            (11,232 )
Taxation
                            1,133  
Loss after tax
                            (10,099 )

(1) Unallocated costs represent fees associated with the acquisitions of Midatch Pharma US, Inc. and Zuplenz in 2015.

For the years ended 31 December 2014 and 2013 there was only one reportable segment being Pipeline R&D, the unallocated costs in respect of 2014 and 2013 were £1.216m and nil.

Non-current assets by location of assets

   
2015
   
2014
   
2013
 
   
£’000
   
£’000
   
£’000
 
                   
Spain
    1,433       1,578       951  
United Kingdom
    14,019       13,457       128  
United States
    28,258       -       -  
      43,710       15,035       1,079  

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013


 
4 
Loss from operations

   
2015
   
2014
   
2013
 
Loss from operations is stated after charging/(crediting):
  £' 000    
£'000
   
£'000
 
Changes in inventories of finished goods and work in
progress
    62       -       -  
Depreciation of property, plant and equipment
    501       321       246  
Amortisation of intangible assets
    236       1       1  
Impairment of IPRD
    -       1,800       -  
Operating lease expense:
                       
-     Property
    246       97       194  
-     Plant and machinery
    86       57       -  
Foreign exchange (gain)/loss
    (23 )     (37 )     28  
IPO costs
    -       763       -  
Acquisition costs
    2,991       172       -  
Loss on disposal of property, plant and equipment
    -       89       -  
Gain on bargain purchase
    (165 )     -       -  

US listing and IPO costs primarily relate to the professional fees incurred on the admission of the Group to the NASDAQ Capital Market in December 2015 and the IPO on AIM in December 2014.

Acquisition costs relate to professional fees incurred on the acquisition of Midatech Pharma US, Inc. and Zuplenz in 2015 and Midatech Pharma (Wales) Limited in 2014.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
5 
Staff costs

   
2015
   
2014
   
2013
 
    £ ’000    
£'000
   
£'000
 
Staff costs (including directors) comprise:
                   
Wages and salaries
    3,731       2,322       1,866  
Defined contribution pension cost (note 28)
    183       169       177  
Social security contributions and similar taxes
    431       322       295  
Share based payment
    170       260       -  
      4,515       3,073       2,338  
 
Employee numbers

The average number of staff employed by the Group during the financial year amounted to:

   
2015
   
2014
   
2013
 
    £ ’000    
£'000
   
£'000
 
                         
Research and development
    45       28       22  
General and administration
    22       10       7  
Sales and marketing
    7       -       -  
      74       38       29  

Key management personnel compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the directors of the company, and the Chief Operating Officer.
 
   
2015
   
2014
   
2013
 
    £ ’000    
£'000
   
£'000
 
                         
Wages and salaries
    850       546       561  
Defined contribution pension cost
    59       36       55  
Payments made to third parties
    223       184       -  
Social security contributions and similar taxes
    88       78       72  
Benefits in kind
    7       36       7  
Share based payment
    170       260       -  
      1,397       1,140       695  


None of the Directors has exercised share options during the year.

During the year two Directors (2014: 2) participated in a defined contribution pension scheme.
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
6 
Finance income and expense

   
2015
   
2014
   
2013
 
Finance income
  £ ’000    
£'000
   
£'000
 
                     
Interest received on bank deposits
    53       8       1  
Gain on equity settled derivative financial liability
    1,638       -       -  
Total finance income
    1,691       8       1  

The gain on the equity settled derivative financial liability has arisen due to the reduction in the share price between the date of acquisition of Midatech Pharma US, Inc. and the year end.

   
2015
   
2014
   
2013
 
Finance expense
  £ ’000    
£'000
   
£'000
 
                     
Bank loans
    2       126       3  
Other loans
    3       -       50  
Interest on convertible loans
    -       35       195  
Non-equity preference shares
    -       -       137  
Total finance expense
    5       161       385  
 
7 
Taxation
 
   
2015
   
2014
   
2013
 
    £ ’000    
£'000
   
£'000
 
Current tax credit
                   
Current tax credited to the income statement
    1,002       663       799  
Taxation payable in respect of foreign subsidiary
    -       (5 )     -  
      1,002       658       799  
Deferred tax credit
                       
Reversal of temporary differences
    131       360       -  
Total current tax and tax credit
    1,133       1,018       799  

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013


The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to losses for the year are as follows:

   
2015
   
2014
   
2013
 
    £ ’000    
£'000
   
£'000
 
                     
Loss before income tax
    (11,232 )     (10,100 )     (4,883 )
                         
Expected tax credit based on the standard rate of United
Kingdom corporation tax at the domestic rate of 20.25%
(2014: 21.49%, 2013:20%)
    (2,274 )     (2,170 )     (977 )
                         
Fixed asset differences
    -       12       4  
Expenses not deductible for tax purposes
    185       440       67  
Adjustments to brought forward values
    (8 )     33       -  
Additional deduction for R&D expenditure
    (789 )     (566 )     (811 )
Surrender of tax losses for R&D tax refund
    406       419       653  
Adjust deferred tax opening/closing rate
    -       59       -  
Income not taxable
    -       (44 )     -  
Difference in capital allowances and
depreciation/amortisation
    -       -       5  
Other short term timing differences
    -       -       23  
Unrelieved tax losses and other deductions arising in the
period
    (78 )     (35 )     237  
Deferred tax not recognised
    1,425       834       -  
Total tax credited to the income statement
    (1,133 )     (1,018 )     (799 )

The taxation credit arises on the enhanced research and development tax credits accrued for the respective periods.

The Finance Act 2013 includes provision for the main rate of corporation tax to reduce from 23% to 21% from 1 April 2014 and to 20% from 1 April 2015.

8 
Loss per share

   
Total
   
Total
   
Total
 
   
2015
   
2014
   
2013
 
Numerator
  £ ’000    
£'000
   
£'000
 
Loss used in basic EPS and diluted EPS
    (10,099 )     (9,082 )     (4,084 )
                         
Denominator
                       
Weighted average number of ordinary shares used in basic
EPS
    28,229,814       9,026,347       5,715,576  
Basic and diluted loss per share - pence
    (36p )     (101p )     (71p )

The 2013 loss per share is based on the Midatech Limited weighted average number of shares in issue which has been restated to take account of the share division that took place on 28 November 2014 whereby each 0.001p Ordinary Share was sub divided into two 0.0005p Ordinary Shares.
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013


9 
Property, plant and equipment

   
Fixtures
   
Leasehold
   
Computer
   
Laboratory
       
   
and fittings
   
improve-
ments
   
equipment
   
equipment
   
Total
 
   
£'000
   
£'000
   
£'000
   
£'000
   
£'000
 
Cost
                             
At 1 January 2013
    716       746       147       161       1,770  
Additions
    16       15       15       1       47  
Exchange differences
    16       6       3       -       25  
At 31 December 2013
    748       767       165       162       1,842  
                                         
At 1 January 2014
    748       767       165       162       1,842  
Additions
    524       259       18       229       1,030  
Acquired through acquisition of
subsidiary
    3       19       15       207       244  
Exchange differences
    (42 )     (41 )     (3 )     -       (86 )
Disposals
    (31 )     (124 )     -       (15 )     (170 )
At 31 December 2014
    1,202       880       195       583       2,860  
                                         
At 1 January 2015
    1,202       880       195       583       2,860  
Additions
    183       283       173       385       1,024  
Acquired through acquisition of
subsidiary
    -       -       -       16       16  
Exchange differences
    (66 )     (51 )     (14 )     (1 )     (132 )
                                         
At 31 December 2015
    1,319       1,112       354       983       3,768  
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
9
Property, plant and equipment (continued)

                               
   
Fixtures
   
Leasehold
   
Computer
   
Laboratory
       
   
and fittings
   
improve-
ments
   
equipment
   
equipment
   
Total
 
   
£'000
   
£'000
   
£'000
   
£'000
   
£'000
 
Accumulated depreciation
                             
                               
At 1 January 2013
    321       400       94       79       894  
Charge for the year
    102       86       22       36       246  
Exchange differences
    7       9       2       -       18  
                                         
At 31 December 2013
    430       495       118       115       1,158  
                                         
At 1 January 2014
    430       495       118       115       1,158  
Charge for the year
    102       67       24       128       321  
Exchange differences
    (22 )     (33 )     (2 )     3       (54 )
Disposals
    (31 )     (50 )     -       -       (81 )
At 31 December 2014
    479       479       140       246       1,344  
                                         
At 1 January 2015
    479       479       140       246       1,344  
Charge for the year
    3       282       48       168       501  
Exchange differences
    (24 )     (28 )     (8 )     (1 )     (61 )
                                         
At 31 December 2015
    458       733       180       413       1,784  
                                         
Net book value
                                       
                                         
At 31 December 2015
    861       379       174       570       1,984  
At 31 December 2014
    723       401       55       337       1,516  
At 31 December 2013
    318       272       47       47       684  
At 1 January 2013
    395       346       53       82       876  

Included within the total net book value of tangible fixed assets is £266k (2014: £224k and 2013: £346k) in respect of assets held under finance leases and similar hire purchase contracts. The depreciation charge for the year on these assets was £26k (2014: £79k and 2013: £90k). These assets were held as security in respect of their finance lease obligations.

No other assets were held as security other than those on finance lease.
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
10 
Intangible assets

   
In-process
research and
development
   
Product and
marketing
rights
   
Goodwill
   
IT/Website
costs
   
Total
 
   
£'000
   
£'000
   
£'000
   
£'000
   
£'000
 
                               
Cost
                             
At 1 January 2013
    -       -       -       9       9  
Additions
    -       -       -       3       3  
At 31 December 2013
    -       -       -       12       12  
At 1 January 2014
    -       -       -       12       12  
Acquired in business combinations
    12,600       -       2,291       -       14,891  
At 31 December 2014
    12,600       -       2,291       12       14,903  
                                         
At 1 January 2015
    12,600       -       2,291       12       14,903  
Additions
    -       -       -       3       3  
Acquired in business combinations
    -       17,989       9,952       -       27,941  
Foreign exchange
    -       332       213       -       545  
At 31 December 2015
    12,600       18,321       12,456       15       43,392  
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
10
Intangible assets (continued)

   
In-process
   
Product and
   
Goodwill
   
IT/Website
       
   
research and
   
marketing
         
Costs
   
Total
 
   
development
   
rights
                   
   
£'000
   
£'000
   
£'000
   
£'000
   
£'000
 
                               
Accumulated amortisation
                             
At 1 January 2013
    -       -       -       7       7  
Amortisation charge for the
year
    -       -       -       1       1  
At 31 December 2013
    -       -       -       8       8  
                                         
At 1 January 2014
    -       -       -       8       8  
Amortisation charge for the
year
    -       -       -       1       1  
Impairment charge for year
    1,800       -       -       -       1,800  
At 31 December 2014
    1,800       -       -       9       1,809  
                                         
Amortisation charge for the
year
    -       235       -       1       236  
Foreign exchange
    -       8       -       -       8  
At 31 December 2015
    1,800       243       -       10       2,053  
Net book value
                                       
At 31 December 2015
    10,800       18,078       12,456       5       41,339  
At 31 December 2014
    10,800       -       2,291       3       13,094  
At 31 December 2013
    -       -       -       4       4  
At 1 January 2013
    -       -       -       2       2  

The individual intangible assets, excluding goodwill, which are material to the financial statements, are:

   
Carrying amount
   
Remaining amortisation period
   
2015
   
2014
   
2013
   
2015
   
2014
   
2013
    £ ’000     £ ’000     £ ’000    
(years)
   
(years)
   
(years)
                                         
Midatech Pharma (Wales)
Limited acquired IPRD
    10,800       10,800       -    
n/a in
process
   
n/a in
process
      -  
Midatech Pharma US, Inc.,
product and marketing rights
    15,570       -       -    
Between 2
and 5
      -       -  
Zuplenz product and
marketing rights
    2,508       -       -       13       -       -  
      28,878       10,800       -                          
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
11 
Prior year - acquisition of Q Chip Limited – revised provisional values

On 8 December 2014, the group acquired 100% of the voting equity of Q Chip Limited and its subsidiaries, a United Kingdom company principally involved in design and development of the Q-Sphera TM drug encapsulation and delivery system and underpinning microsphere manufacturing technology.  On 20 January 2015 Q Chip Limited changed its name to Midatech Pharma (Wales) Limited.  The principal reason for this acquisition was to strengthen the Group’s technology and product portfolios, and thereby diversify risk through the following:

 
a)
Add controlled-release technology to Midatech gold nano-particle and portfolio        
 
b)
Expand the number of development projects
 
c)
Q-Chip’s product portfolio offered Midatech a lower risk profile than Midatech’s own technology thereby mitigating against potential future failure

As disclosed in the financial statements for the year ended 31 December 2014, the value of the identifiable net assets of Midatech Pharma (Wales) Limited had only been determined on a provisional basis due to a valuation carried out on certain assets not being finalised at the time the 2014 financial statements were issued. Had the valuation been finalised the 2014 financial statements would have differed to those previously reported as follows:

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are:

   
Final fair value
 
    £ ’000  
Identifiable intangible assets:
       
      In-process research and development
    12,600  
Property, plant and equipment
    244  
Receivables and other debtors
    314  
Payables and other liabilities
    (494 )
Deferred tax
    (714 )
Cash
    115  
Total net assets
    12,065  
Equity instruments (5,077,122 ordinary shares)
    13,556  
Deferred Equity instruments (299,624 deferred consideration shares
held as shares to be issued)
     800  
Total consideration – non cash movement
    14,356  
Goodwill on acquisition
    2,291  

The main factors leading to the recognition of goodwill are the presence of certain intangible assets, such as the assembled workforce of the acquired entity and the expected synergies of the enlarged Group which do not qualify for separate recognition.

The goodwill and intangible assets recognised will not attract tax deductions.
 
The revenue and net loss included in the Consolidated Statement of Comprehensive Income since 8 December 2014 contributed by Midatech Pharma (Wales) Limited was nil and £0.3m respectively.

If the acquisition had occurred on 1 January 2014, group revenue would have been £0.73m and group loss for the period would have been £0.11m.
  
The net cash inflow in the year in respect of acquisition comprised net cash acquired of £0.1m.
     
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
12 
Acquisition of Midatech Pharma US, Inc.

On 4 December 2015, the Group acquired 100% of the voting equity of DARA BioSciences, Inc., whose principal activity is the sale and marketing of a portfolio of cancer supportive care pharmaceutical products.  At completion of that transaction, DARA BioSciences, Inc. was merged into a wholly owned subsidiary of Midatech Pharma PLC and the name of the merged entity was changed to Midatech Pharma US, Inc.  The principal reason for this acquisition was to acquire commercial infrastructure and capability in the US market.

The revenue included in the consolidated statement of comprehensive income since 4 December 2015 contributed by Midatech Pharma US, Inc. was £502k.  Midatech Pharma US, Inc. contributed a net loss of £238k over the same period.  If the acquisition had occurred at 1 January 2015, Group revenue would have been £3.67m and the Group loss for the period would have been £19.34m.  Acquisition related costs of £2.77m were incurred in relation to this acquisition and are included within (administrative expenses) within the consolidated statement of comprehensive income for the period.

The main factors leading to the recognition of goodwill are the presence of certain intangible assets, such as the assembled workforce of the acquired entity, its established commercial infrastructure and the expected synergies of the enlarged Group which do not qualify for separate recognition.

In addition to the consideration outlined below additional, cash consideration may become payable (up to a maximum of £3.85m / $5.7m) if specified sales milestones are achieved for the years ended 31 December 2016 and 2017. These milestones are not expected to be achieved and therefore the fair value is nil. However, should they be achieved then any further payments are expected to be self-financed by incremental milestone-generated cash flow.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
The goodwill and intangible assets recognised will not attract tax deductions.

   
Provisional fair
value
 
    £ ’000  
Identifiable intangible assets:
       
      Product and marketing rights
    15,477  
         
Property, plant and equipment
    16  
Receivables and other debtors
    515  
Stock
    152  
Payables and other liabilities
    (4,150 )
Deferred tax
    (6,191 )
Cash
    2,289  
Total net assets
    8,108  
Equity instruments (5,422,028 ordinary shares)
Deferred Equity instruments
    14,427  
-    Share options*
    1,056  
-    Warrants*
    2,155  
-    Preference share redemption**
    422  
         
Total consideration
    18,060  
Goodwill on acquisition
    9,952  

* The share options and the warrants were valued using the Black Scholes model .
** The preference share redemption was valued on a cash basis

The net cash inflow in the year in respect of the acquisition of the subsidiary comprised:
       
      £’000  
Cash paid on completion – preferred share redemption
    (422 )
Net cash acquired
    2,289  
      1,867  

Assumption of DARA BioSciences, Inc. share options and warrants

At the time of completion of the merger with DARA BioSciences, Inc. there were a number of outstanding and unexercised options and warrants over common stock in DARA. Pursuant to the terms of the merger agreement, these options and warrants became exercisable for a number of Midatech ordinary shares equal to the product of (A) the number of shares of DARA common stock that were issuable upon exercise of the stock option or warrant immediately prior to the merger, multiplied by (B) a factor of 0.272, that being the Exchange Ratio defined in the merger agreement, rounded down to the nearest whole number of Midatech ordinary shares.
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
The per share exercise price for each Midatech ordinary share issuable upon exercise of each stock option or warrant will be equal to (C) the exercise price per share of DARA common stock at which the DARA stock option or warrant was exercisable divided by (D) the Exchange Ratio of 0.272, rounded up to the nearest whole cent.  All other terms, notably including expiration dates, remained materially the same.

As at 31 December 2015 there were DARA options outstanding over 721,000 Midatech ordinary shares with a weighted average exercise price of $7.62 per share, within a range of $2.54 to $770.59, and a weighted average remaining contractual life of 8.5 years. The risk free rate ranged from 0.63% to 1.81%, volatility from 59% to 79% and the expected life from 1.9 – 8.6 years. The exercise of all options would raise additional cash of $5.50m.

Also at the year-end there were DARA warrants outstanding over 3,034,437 Midatech ordinary shares with a weighted average exercise price of $9.67 per share, within a range of $3.06 to $164.71, and a weighted average remaining contractual life of 3.1 years. The risk free rate ranged from 0.44% to 1.63%, volatility from 59% to 79% and the expected life from 0.1 – 7.0 years.  The exercise of all warrants would raise additional cash of $29.33m.

The share options and warrants were valued using the Black Scholes model for the purpose of calculating the consideration payable for the DARA business. These options and warrants are treated as an equity settled derivative, held as a fair value through profit and loss instrument, see note 22.

13 
Acquisition of Zuplenz

On 24 December 2015, the Group acquired US sales and marketing rights to the product Zuplenz®, an FDA-approved, marketed anti-emetic oral soluble film used in adult patients for the prevention of highly and moderately emetogenic chemotherapy-induced nausea and vomiting, radiotherapy-induced nausea and vomiting and post-operative nausea and vomiting. This acquisition was deemed to be a business combination following a review of the inputs, processes and potential for a market participant to generate outputs using the assets and agreements acquired.

The goodwill recognised will not attract a tax deduction.

   
Provisional fair
value
 
      £’000  
Identifiable intangible assets:
       
Product and marketing rights
    2,512  
Stock
    231  
         
Total net assets
    (2,743 )
Cash consideration
    2,528  
Contingent consideration*
    50  
Total consideration
    2,578  
Negative goodwill on acquisition
    (165 )

 
*
The contingent consideration relates to various milestone payments which are dependent on the quarterly sales achieved in calendar years 2016 and 2017 and annual sales from 2018 to 2022 exceeding specified sales targets.

No revenue or costs were contributed by Zuplenz in the year. Acquisition related costs of £218k were incurred in relation to this acquisition and are included within administrative expenses within the consolidated statement of comprehensive income for the period.
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
The negative goodwill of £165k is included within administrative costs in the consolidated statement of comprehensive income. It arose due to the seller of Zuplenz seeking to conclude the transaction as quickly as possible.

No revenue was included in the consolidated statement of comprehensive income since 24 December 2015 by Zuplenz. Zuplenz contributed a net loss of £nil over the same period. We are unable to quantity the impact on Group revenue and Group loss had the occurred on 1 January 2015 due to the seller of the product not providing separable accounting records.

The net cash outflow in the year in respect of the business acquisition comprised:  
     
      £’000  
         
Cash paid on completion
    2,528  

14 
Impairment testing

Midatech Pharma (Wales) Ltd

Details of goodwill and IPRD allocated to the acquired cash generating unit and the valuation basis is as follows:

 
IPRD carrying amount
Goodwill carrying amount
Valuation
Basis
Name
2015
2014
2015
2014
 
 
£’000
£000
£’000
£000
£’000
CGU – Midatech Pharma (Wales) Ltd
10,800
10,800
2,291
2,291
Value in use

 
An impairment charge of £1.8m and a related £0.36m deferred tax credit was recorded in the Midatech Pharma (Wales) Ltd CGU as a result of the curtailment of an agreement with a commercial partner post acquisition. The carrying value of a component of IPRD, was reduced from £1.8m to nil. The resulting impairment charge was recorded in research and development expenditure within the consolidated statement of comprehensive income in 2014.

The remaining assets of the cash generating unit were not identified as being materially different to the fair values determined at the acquisition date on 8 December 2014. The IPRD was valued using 15-16 year risk adjusted cash flow forecasts, in line with patent life, that have been approved by the Board. A period longer than 5 years is appropriate on the basis that the investment is long term and the development and commercialisation process is typically in excess of 5 years.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
The key assumptions used in the model include the following:  
 
Assumptions
 
2015
CGU – Q Chip
Limited and
subsidiaries
2014
CGU –
 Q Chip
Limited and
subsidiaries
Pre-tax discount rate
17.7-19.5%
17.7-19.5%
     
Cumulative probability of success of projects
46% to 69%
23% to 57%

2015
If any one of the following changes were made to the above key assumptions, applied to all projects, the carrying value and recoverable amount would be equal.

 
2015
CGU – Q Chip
Limited and
subsidiaries
   
Pre-tax discount rate for all projects
increase to 23.9%
   
Cumulative probability of success of all projects
44%
 
2014
The value in use calculations used to value the acquired intangibles and appraise the remaining carrying value of the intangibles at 31 December 2014 were materially the same. This is because of the impairment test date and acquisition date being only 23 days apart. Any increase in the discount rate or decrease in the probability of success of projects stated above would result in an impairment.

Midatech Pharma US, Inc.

Details of goodwill and intangibles allocated to the acquired cash generating unit and the valuation basis is as follows:  
Name
 
Goodwill
carrying
amount 2015
 
Product and
marketing
rights carrying
amount 2015
 
Valuation basis
   
£000
 
£000
   
CGU – Midatech Pharma US, Inc.
 
9,952
 
15,477
 
Value in use

The remaining assets of the cash generating unit were not identified as being materially different to the fair values determined at the acquisition date on 4 December 2015. The IPRD was independently valued using a 10-year risk adjusted cash flow forecasts, in line with patent life, that have been approved by the Board. Cash flows were modelled going forward until the point where cash flows on a present value basis reduce to a minimal amount.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
The key assumptions used in the model include the following:
  Assumptions
 
2015
CGU – Midatech Pharma US, Inc.
     
Pre-tax discount rate
 
23.2%

The value in use calculations used to value the acquired intangibles and appraise the remaining carrying value of the intangibles at 4 December 2015 were materially the same. This is because of the impairment test date and acquisition date being only 27 days apart and no event occurred during that period that would lead to a revision in the underlying assumptions of the forecast.

15 
Subsidiaries

The subsidiaries of Midatech Pharma PLC, all of which are 100% owned and have been included in these financial statements in accordance with the details set out in the basis of preparation and basis of consolidation note 1, are as follows:

   
Country of
 
Nature of
   
Name
 
incorporation
 
Business
 
Notes
Midatech Limited
 
United Kingdom
 
Trading company
   
Midatech Pharma (Espana) SL
 
Spain
 
Trading company
 
(a)
Midatech Andalucia SL
 
Spain
 
Dormant
   
PharMida AG
 
Switzerland
 
Trading company
 
(b)
Midatech Pharma (Wales) Limited
 
United Kingdom
 
Trading company
 
(c)
Midatech Pharma US, Inc.
 
USA
 
Trading company
 
(d)
Dara Therapeutics, Inc.
 
USA
 
Dormant
   
Midatech Pharma PTY
 
Australia
 
Trading company
 
(e)
 
Notes:

 
(a)
Midatech Biogune SL was renamed Midatech Pharma (Espana) Limited on 16 April 2015.
 
(b)
PharMida AG became dormant in January 2016.
 
(c)
Q Chip Limited was renamed Midatech Pharma (Wales) Limited on 23 January 2015.
 
(d)
DARA Bio Sciences, Inc. was acquired on 4 December 2015 through a merger with a specially incorporated subsidiary of Midatech Pharma PLC.  This merger subsidiary was renamed Midatech Pharma US, Inc. on 4 December 2015.
 
(d)
Midatech Pharma PTY was incorporated on 16 February 2015.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
16 
Joint arrangements

 
Country of
   
Name
incorporation
Nature of business
Type of arrangement
Syntara LLC
USA
Dormant
Joint venture
       
MidaSol
Therapeutics GP
Cayman Islands
Research and development partner
Joint operation

The Group has a 50% (2014: 50%) interest in two joint arrangements: Syntara LLC and MidaSol Therapeutics.  The primary activity of these joint arrangements was to provide the partners with collaborative research and development on drug delivery systems in the market, which is in line with the Group’s strategy to develop a safe and effective drug delivery system.

Syntara LLC is a dormant joint venture where the group has joint control over the separate legal entity. The group equity accounts for its interests in this arrangement; the results are immaterial to the financial statements.

MidaSol Therapeutics has a separate legal entity however no costs or revenues pass through it.  The Group and its collaborative partner incur costs in respect of research and development and periodically agree on a contribution from either side to ensure that both parties have incurred 50% of the total costs. Contributions from their research partner are netted against the costs to which they relate within research and development and the arrangement is accounted for as a joint operation.

   
2015
   
2014
   
2013
 
      £’000    
£'000
   
£'000
 
Research and development spend on MidaSol Therapeutics
    776       248       542  
Year-end receivable due from joint operation partner
    219       -       146  

17 
Trade and other receivables
 
   
2015
   
2014
   
2013
 
      £’000    
£'000
   
£'000
 
                     
Trade receivables
    985       189       160  
Prepayments
    685       49       68  
Other receivables
    1,213       649       1,060  
Total trade and other receivables
    2,883       887       1,288  
Less: non-current portion (rental deposit and bond)
    (387 )     (425 )     (379 )
Current portion
    2,496       462       909  

Trade and other receivables do not contain any impaired assets.  The Group does not hold any collateral as security and the maximum exposure to credit risk at the Consolidated Statement of Financial Position date is the fair value of each class of receivable.

Book values approximate to fair value at 31 December 2015, 2014 and 2013.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
18 
Cash and cash equivalents and cash flow supporting notes

   
2015
   
2014
   
2013
 
      £’000    
£'000
   
£'000
 
                     
Cash at bank available on demand
    16,175       30,325       2,387  
                         
Significant non-cash transactions are as follows:
                       
      2015       2014       2013  
      £’000    
£'000
   
£'000
 
Financing activities
                       
Conversion of convertible local notes into equity
    -       -       3,255  
Share issues net of costs – cash transactions
                       
      2015       2014       2013  
      £’000    
£'000
   
£'000
 
Funds raised on the Initial Public Offering
    -       32,000       -  
Costs of raising funds on Initial Public Offering/listing
    -       (1,350 )     -  
Issue of shares in Midatech Limited pre flotation
    -       3,202       5,797  
      -       33,852       5,797  

19 
Inventories

   
2015
   
2014
   
2013
 
      £’000    
£'000
   
£'000
 
                     
Work in progress
    230       -       -  
Finished goods
    229       -       -  
Total inventories
    459       -       -  

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
20 
Trade and other payables

   
2015
   
2014
   
2013
 
Current
     £’000    
£'000
   
£'000
 
                     
Trade payables
    2,285       981       522  
Other payables
    35       177       177  
Accruals
    3,101       732       58  
Total financial liabilities, excluding loans and
borrowings, classified as financial liabilities measured at
amortised cost
    5,421       1,890       757  
Tax and social security
    183       274       78  
Deferred revenue
    1,480       177       212  
Total trade and other payables
    7,084       2,341       1,047  

Book values approximate to fair value at 31 December 2015, 2014 and 2013.

All current trade and other payables are payable within 3 months of the period end date shown above.

Government grants in UK

The Group received development grant funding from the European Commission of £0.15m on 18 August 2014 and £0.07m on 16 December 2014 under the Health Cooperation Work Programme of the 7th Framework Programme of which £0.15m (2013: £0.21m) is recorded as deferred revenue. The collaborative project supported by this grant is part of the EE-ASI European Research network.

Government grants/loans in Spain

Five tranches of government loans have been received by Midatech Pharma Espana SL (formerly Midatech Biogune SL) for the finance of research, technical innovation and the construction of their laboratory. The loans are term loans which carry an interest rate below the market rate, and are repayable over periods through to 2022. The loans carry default interest rates in the event of scheduled repayments not being met. On initial recognition the loans are discounted at a market rate of interest with the credit being classified as a grant within deferred revenue. The deferred grant revenue is released to the consolidated statement of comprehensive income within research and development costs in the period to which the expenditure is recognised.

The debt element of the government loans is designated within note 21 as borrowings, the gross contractual repayment of the loans is disclosed in note 23.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
21 
Loans and borrowings

   
2015
   
2014
   
2013
 
      £’000    
£'000
   
£'000
 
Current
                   
Bank loans
    9       9       -  
Finance lease
    70       37       47  
Government and research loans
    363       445       138  
Preference share dividends payable 
    -       -       1,063  
Total
    442       491       1,248  
                         
Non-current
                       
Bank loans
    20       31       -  
Government and research loans
    1,420       1,457       1,006  
Preference shares
    -       -       1,075  
Finance lease
    68       -       38  
Total
    1,508       1,488       2,119  

Book values approximate to fair value at 31 December 2015, 2014 and 2013.

Obligations under finance leases are secured by a fixed charge over the fixed assets to which they relate.

The Group had no undrawn committed borrowing facilities at any year end.

22 
Derivative financial liability - current
 
   
2015
   
2014
   
2013
 
      £’000    
£'000
   
£'000
 
                     
Equity settled derivative financial liability
    1,573       -       -  
On aquisition — 5 December 2015     3,211       -       -  
Gain recognized in finance income within
the consolidated statement of
comprehensive income
    (1,638 )      -       -  
 At 31 December     1,573       -       -  

Equity settled derivative financial liability is not a liability that is to be settled for cash. The Group assumed fully vested warrants and share options on the acquisition of DARA Biosciences, Inc. The number of ordinary shares to be issued when exercised is fixed, however the exercise prices are denominated in US Dollars being different to the functional currency of the parent company. Therefore, the warrants and share options are classified as equity settled derivative financial liabilities through the profit and loss account. The financial liabilities were valued using the Black-Scholes option pricing model. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporated any interest paid on the financial liability and is included in the ‘other gains and losses’ line item in the income statement. Fair value is determined in the manner described in note 23. A key input in the valuation of the instrument is the company share price. The share price of the company reduced from £2.65 at the date of acquisition of DARA Biosciences, Inc. to £1.74 at 31 December 2015, resulting in a gain of £1.64m on re-measurement which has been credited to finance income.
 

23 
Financial instruments - risk management

The Group is exposed through its operations to the following financial risks:

 
·
Credit risk
 
·
Foreign exchange risk
 
·
Liquidity risk

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. The Board does not believe that its risk exposure to financial instruments,   its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note has changed in the past year.

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

 
· 
Trade and other receivables;

 
· 
Cash and cash equivalents;

 
· 
Trade and other payables;

 
· 
Accruals;

 
· 
Loans and borrowings; and

 
· 
Derivative financial liability.

A summary of the financial instruments held by category is provided below:

Financial assets - loans and receivables

   
2015
   
2014
   
2013
 
      £’000    
£'000
   
£'000
 
                     
Cash and cash equivalents
    16,175       30,325       2,387  
Trade receivables
    985       189       160  
Other receivables
    1,213       649       1,060  
Total financial assets
    18,373       31,163       3,607  

Financial liabilities - amortised cost

   
2015
   
2014
   
2013
 
      £’000    
£'000
   
£'000
 
                     
Trade payables
    2,285       981       522  
Other payables
    35       177       177  
Accruals
    3,101       732       58  
Loans and borrowings
    1,950       1,979       3,367  
Total financial liabilities - amortised cost
    7,371       3,869       4,124  

Financial liabilities – fair value through profit and loss - current
 
   
2015
   
2014
   
2013
 
      £’000    
£'000
   
£'000
 
                     
Equity settled derivative financial liability
    1,573       -       -  

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
General objectives, policies and processes

The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s Management.

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below:

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
 
 
•
Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities;
 
 
•
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
 
 
•
Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
 
The fair value of the Group’s financial liability is measured at fair value on a recurring basis.

The following table gives information about how the fair value of this financial liability is determined:

Financial
liabilities
 
Fair value
as at
31/12/2015
 
Fair value
hierarchy
 
Valuation
technique(s)
and key
input(s)
 
Significant unobservable
input(s)
 
Relationship of
unobservable inputs to
fair value
                     
Equity
settled
financial
derivative
liability
 
£1,573
 
Level 3
 
Black Scholes option pricing model
 
Volatility rates between a range of 59% and 76% determined using historical volatility of comparable companies.
 
The higher the volatility the higher the fair value.
                     
 
             
Expected life between a range of 0.1 and 8.6 years determined using the remaining life of the share options.
 
The shorter the expected life the lower the fair value.
                     
 
             
Risk-free rate between a range of 0.44% and 1.81% determined using the expected life assumptions.
 
The higher the risk-free rate the higher the fair value.
 
If the above unobservable volatility input to the valuation model were 10% higher while all other variables were held constant, the carrying amount of shares would increase by £273k.

If the above unobservable expected life input to the valuation model were 1 year shorter while all other variables were held constant, the carrying amount of shares would decrease by £70k.

If the above unobservable risk free rate input to the valuation model were 10% higher while all other variables were held constant, the carrying amount of shares would increase by £5k.

There were no transfers between Level 1 and 2 in the period.
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
The financial liability measured at fair value on Level 3 fair value measurement represents consideration relating to a business combination.
   
The Group had no material financial instruments carried at fair value in the statement of financial position on 31 December 2014 or 31 December 2013.

Credit risk

Credit risk is the risk of financial loss to the Group if a development partner or a counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from amounts due from collaborative partners which is deemed to be low.

Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with high credit status are accepted.
The Group does not enter into derivatives to manage credit risk.

Quantitative disclosures of the credit risk exposure in relation to financial assets are set out in note 17. This includes details regarding trade and other receivables, which are neither past due nor impaired.

The total exposure to credit risk of the Group is equal to the total value of the financial assets held at each year end as noted above.

Cash in bank

The Group is continually reviewing the credit risk associated with holding money on deposit in banks and seeks to mitigate this risk by holding deposits with banks with high credit status.

Foreign exchange risk

Foreign exchange risk arises because the Group has a material operation located in Bilbao, Spain, and operations in the US whose functional currencies are not the same as the functional currency of the Group. The Group’s net assets arising from such overseas operations are exposed to currency risk resulting in gains or losses on retranslation into sterling. Given the levels of materiality, the Group does not hedge its net investments in overseas operations as the cost of doing so is disproportionate to the exposure.

Foreign exchange risk also arises when individual Group entities enter into transactions denominated in a currency other than their functional currency; the Group’s transactions outside the UK to the US, Europe and Australia drive foreign exchange movements where suppliers invoice in currency other than sterling. These transactions are not hedged because the cost of doing so is disproportionate to the risk.

As of 31 December 2015, 2014 and 2013, the Group’s exposure to foreign exchange risk was not material, however, the board will monitor the situation going forward.

Liquidity risk

Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
It is the Group’s aim to settle balances as they become due.

The Group’s current financial position is such that the Board does not consider there to be a short term liquidity risk however the Board will continue to monitor long term cash projections in light of the development plan and will consider raising funds as required to fund long term development projects. Development expenditure can be curtailed as necessary to preserve liquidity.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities:
 
2015
 
Up to 3
months
   
Between
3 and 12
months
   
Between
1 and 2
years
   
Between
2 and 5
years
   
Over
5 years
 
      £’000       £’000       £’000       £’000       £’000  
Trade and other payables
    5,421       —       —       —       —  
Bank loans
    2       7       9       13       —  
Finance leases
    7       71       27       56       —  
Government research loans
    36       352       195       644       755  
Total
    5,466       430       231       713       755  

2014
 
Up to 3
months
   
Between
3 and 12
months
   
Between
1 and 2
years
   
Between
2 and 5
years
   
Over
5 years
 
                               
      £’000       £’000       £’000       £’000       £’000  
Trade and other payables
    1,890       —       —       —       —  
Bank loans
    2       7       9       24       —  
Finance leases
    11       27       —       —       —  
Government research loans
    —       485       207       891       351  
Total
    1,903       519       216       915       351  

2013
 
Up to 3
months
   
Between
3 and 12
months
   
Between
1 and 2
years
   
Between
2 and 5
years
   
Over
5 years
 
                               
      £’000       £’000       £’000       £’000       £’000  
Trade and other payables
    757       —       —       —       —  
Finance leases
    12       35       38       —       —  
Government research loans
    —       159       169       535       445  
Preference shares
    —       —       —       —       1,075  
Preference share dividends payable
    1,063       —       —       —       —  
Total
    1,832       194       207       535       1,520  

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
More details which regard to the line items above are included in the respective notes:
 
 
•
Trade and payables – Note 20
 
 
•
Loans and borrowings – Note 21

Capital risk management

The Group monitors capital which comprises all components of equity (i.e. share capital, share premium, foreign exchange reserve and accumulated deficit).

The Group’s objectives when maintaining capital are:
 
 
•
to safeguard the entity’s ability to continue as a going concern, and
 
 
•
to have sufficient resource to take development projects forward towards commercialisation.

The Group continues to incur substantial operating expenses. Until the Group generates positive net cash inflows from the commercialisation of its products it remains dependent upon additional funding through the injection of equity capital and government funding. The Group may not be able to generate positive net cash inflows in the future or to attract such additional required funding at all, or on suitable terms. In such circumstances the development programmes may be delayed or cancelled and business operations cut back.

The Group seeks to reduce this risk by keeping a tight control on expenditure, avoiding long-term supplier contracts (other than clinical trials), prioritising development spend on products closest to potential revenue generation, obtaining government grants (where applicable), maintaining a focused portfolio of products under development and keeping shareholders informed of progress.

There have been no changes to the Group’s objectives, policies and processes for managing capital and what the Group manages as capital, unless otherwise stated in this note, since the past year.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
24 
Deferred tax

Deferred tax is calculated in full on temporary differences under the liability method using tax rates applicable in the tax jurisdictions where the tax asset or liability would arise.

The movement on the deferred tax account is as shown below:

   
2015
   
2014
 
      £’000    
£'000
 
               
Liability at 1 January
    354       -  
Arising on business combination
    6,191       714  
Credited to income on impairment of IPRD
    -       (360 )
Credited to income statement
    (131 )     -  
Foreign exchange gain
    133       -  
Liability at 31 December
    6,547       354  


Unused tax losses carried forward, subject to agreement with local tax authorities, were as follows:

   
Gross losses
   
Unrecognised
deferred tax
asset
 
      £’000       £’000  
                 
31 December 2013
    13,004       2,601  
31 December 2014
    16,017       3,203  
31 December 2015
    23,286       4,191  

With the exception of the £1.63m (2014: £1.81m) deferred tax asset which qualifies for offset against the deferred tax liability arising on the acquisition of Midatech Pharma (Wales) Limited and the remaining potential deferred tax asset has not been provided in these accounts due to uncertainty as to the whether the asset would be recovered.

Details of the deferred tax liability are as follows:

2015
 
Asset
   
Liability
   
Net
 
      £’000       £’000    
£'000
 
                       
Business Combinations
    1,625       (8,172
)
    (6,547 )
                         
2014
 
Asset
   
Liability
   
Net
 
      £’000       £’000    
£'000
 
                         
Business Combinations
    1,806       (2,160 )     (354 )
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
25 
Share capital

                                     
   
2015
   
2015
   
2014
   
2014
   
2013
   
2013
 
Allotted and fully paid – classified as equity
 
Number
      £    
Number
      £    
Number
      £  
                                           
At 1 January
                                         
Ordinary shares of 0.005p each
    33,467,504       1,673       27,794,258       1,390       2,889,229       289  
Deferred shares of £1 each
    1,000,001       1,000,001       1,000,001       1,000,001       -       -  
C preference shares of 0.01p each
    -       -       -       -       565,064       57  
Total
            1,001,674               1,001,391               346  
                                                 
                                                 
                                                 
                                                 
      2015       2015       2014       2014       2013       2013  
Allotted and fully paid up – classified as liabilities
 
Number
      £    
Number
      £    
Number
      £  
                                                 
A 7.5% preference shares of £1 each
    -       -       -       -       1,000,000       1,000,000  
B 15% preference shares of £1 each
    -       -       -       -       75,000       75,000  
              -               -               1,075,000  

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013


In accordance with the Articles of Association for the Company adopted on 13 November 2014, the share capital of the Company consists of an unlimited number of ordinary shares of nominal value 0.005 pence each. Ordinary and C preference shares were recorded as equity.

Rights attaching to the shares prior to the incorporation of Midatech Pharma PLC

Shares classified as equity

The holders of ordinary shares and C preference shares in the capital of the Company had the following rights and ranked pari passu with one another:

 
·
To receive notice of, to attend and to vote at all general meetings of the Company, in which case shareholders shall have one vote for each share of which they are the holder.

 
·
To receive such dividend as is declared by the Board on each share held.

In the event of a distribution of assets, the capital return would be distributed as follows:

 
·
C preference shareholders to receive original issue price;

 
·
A and B preference shareholders to receive an agreed amount per share as set out in the Company’s Articles; and

 
·
C preference and ordinary shareholders to receive remaining capital and rank pari passu.

Shares classified as liabilities

The A and B preference shares have a nominal value of £1 and have right to a fixed cumulative, preferential dividend at a rate of 7.5% and 15% respectively, dividends ceased to accrue from 28 October 2013. Accrued dividends ranked equally amongst A and B preference shares and were compounded at the end of each period. Preference dividends are ranked before any other class of share. The preference dividends did not confer any further rights to participation in the profits or assets of the Company. The preference shares only became redeemable on a listing or change of control. Preference shareholders were entitled to attend and speak at general meetings of the Company but did not have the right of a vote.

A and B preference shares were categorised as liabilities and held at amortised cost until the right to a fixed dividend ceased to accrue.

Rights attaching to the shares   following the incorporation of Midatech Pharma PLC

Shares classified as equity

The holders of ordinary shares in the capital of the Company have the following rights:

 
·
To receive notice of, to attend and to vote at all general meetings of the Company, in which case shareholders shall have one vote for each share of which he is the holder.

 
·
To receive such dividend as is declared by the Board on each share held.

The holders of Deferred Shares in the capital of the Company:

 
·
shall not be entitled to receive notice of or to attend or speak at any general meeting of the Company or to vote on any resolution to be proposed at any general meeting of the Company; and

 
·
shall not be entitled to receive any dividend or other distribution of out of the profits of the Company.

In the event of a distribution of assets, the Deferred shareholders shall receive the nominal amount paid up on such share after the holder of each ordinary share shall have received (in cash or specie) the amount paid up or credited as paid up on such ordinary share together with an additional payment of £100 per share. The company has the authority to purchase the Deferred Shares and may require the holder of the Deferred Shares to sell them for a price not exceeding 1p for all the Deferred Shares.

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013


25
Share Capital (continued)

Date of Issue
Type of Share Issue
 
Ordinary
Shares
   
A Preference
Shares
   
B Preference
Shares
   
C Preference
Shares
   
Share Price
   
Total
consideration
 
     
Number
   
Number
   
Number
   
Number
      £       £’000  
2013
                                         
As at 1 January 2013
Brought forward
    2,457,493       1,000,000       75,000       -       -       -  
11 February 2013
Convertible loan
    234,196       -       -               8.38       1,963  
21 February 2013
Subscription option
    16,489       -       -       -       13.70       226  
27 February 2013
Subscription option
    133,808       -       -       -       8.38       1,120  
30 April 2013
Subscription option
    5,474       -       -       -       13.70       75  
10 May 2013
Subscription option
    4,806       -       -       -       13.70       66  
03 June 2013
Subscription option
    962       -       -       -       13.70       13  
18 June 2013
Subscription option
    5,715       -       -       -       17.50       100  
04 July 2013
Subscription option
    14,286       -       -       -       17.50       250  
15 July 2013
Subscription option
    5,715       -       -       -       17.50       100  
05 August 2013
Subscription option
    2,857       -       -       -       17.50       50  
08 August 2013
Subscription option
    1,428       -       -       -       17.50       25  
26 September 2013
Subscription option
    3,000       -       -       -       17.50       53  
27 September 2013
Subscription option
    3,000       -       -       -       17.50       53  
05 December 2013
Convertible
    -       -       -       144,552       8.95       1,294  
05 December 2013
Share issue
    -       -       -       420,512       8.81       3,705  
Total 2013
      2,889,229       1,000,000       75,000       565,064               9,093  

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013


Date of Issue
 
Type of Share Issue
 
Ordinary
Shares
   
A
Preference
Shares
   
B
Preference
Shares
   
C
Preference
Shares
   
Deferred
Shares
   
Share Price
   
Total
considera-
tion
 
       
Number
   
Number
   
Number
   
Number
   
Number
      £       £’000  
2014
                                                 
As at 1 January 2014
        2,889,229       1,000,000       75,000       565,064       -       -       9,093  
                                                             
30 January 2014
 
Equalisation round
    39,853       -       -       -       -       -       -  
19 April 2014
 
Subscription option
    244,881       -       -       -       -       0.15       37  
13 June 2014
 
Subscription option
    8,250       -       -       -       -       0.15       1  
4 September 2014
 
Rights issue
    105,314       -       -       511,738       -       5.13       3,165  
12 September 2014
 
Share redemption
    -       -       (75,000 )     -       -       -       -  
   
Total pre-share for share exchange –
Midatech Limited
    3,287,527       1,000,000       -       1,076,802       -               12,296  
12 September 2014
 
Subscriber share – Midatech Pharma plc
    1                                       1.0000       -  
13 November 2014
 
Share for share exchange
    3,287,527       1,000,000       -       1,076,802       -       -       -  
13 November 2014
 
Sub-division of subscriber share
    9,999       -       -       -       -       0.0001       -  
28 November 2014
 
Warrant exchange share issue
    628,356       -       -       -       -       0.0001       -  
28 November 2014
 
Share conversion
    (10,000 )     -       -       -       1       -       -  
28 November 2014
 
Share conversion
    1,076,802       -       -       (1,076,802 )     -       -       -  
 
 
Total ordinary shares pre-subdivision
    4,992,685                                                  
28 November 2014
 
Share sub division
    9,985,370       -       -       -       -       -       -  
8 December 2014
 
Share issue on acquisition of Q Chip Limited
    5,077,122       -       -       -       -       2.67       -  
8 December 2014
 
Public offering
    11,985,019       -       -       -       -       2.67       32,000  
8 December 2014
 
Share conversion
    746,747       (1,000,000 )     -       -       1,000,000       -       -  
          27,794,258       -       -       -    
1,000,001
           
32,000
 

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
       
Ordinary
Shares
   
A
Preference
Shares
   
B
Preference
Shares
   
C
Preference
Shares
   
Deferred
Shares
   
Share Price
   
Total
considera-
tion
 
       
Number
   
Number
   
Number
   
Number
   
Number
      £       £’000  
2015
                                                 
As at 1 January 2015
        27,794,258       -       -       -       1,000,001               32,000  
                                                             
24 April 2015
 
Exercise of employee share options
    16,500       -       -       -       -       0.00005       -  
25 September 2015
 
Exercise of employee share options
    10,000       -       -       -       -       0.00005       -  
4 December 2015
 
Share issue on acquisition of DARA BioSciences, Inc.
    5,422,028       -       -       -       -       2.63       14,240  
23 December 2015
 
Deferred consideration re: acquisition of Q
Chip Limited
    224,718       -       -       -       -       2.67       600  
As at 31 December
2015
        33,467,504       -       -       -       1,000,001               46,840  

Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
26 
Reserves

The following describes the nature and purpose of each reserve within equity:

Reserve
 
Description and purpose
     
Share premium
 
Amount subscribed for share capital in excess of nominal value.
     
Merger reserve
 
Represents the difference between the fair value and nominal value of shares issued on the acquisition of subsidiary companies where the company has elected to take advantage of merger relief. This is added to the share premium of Midatech Limited prior to the merger as set out in note 1.
     
Shares to be issued
 
Shares for which consideration has been received but which are not yet issued and which form part of consideration in a business combination.
     
Foreign exchange reserve
 
Gains/losses arising on retranslating the net assets of overseas operations into sterling.
     
Accumulated deficit
 
All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.


27 
Leases

The Group had commitments under non-cancellable operating leases as set out below:

   
Land and
       
   
buildings
   
Other
 
2015
 
£'000
   
£'000
 
             
Expiring In one year or less
    313       1  
Expiring Between one and five years
    410       2  
      723       3  

   
Land and
       
   
buildings
   
Other
 
2014
 
£'000
   
£'000
 
             
Expiring In one year or less
    150       79  
Expiring Between one and five years
    159       -  
      309       79  
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
   
Land and
       
   
Buildings
   
Other
 
2013
 
£'000
   
£'000
 
             
Expiring In one year or less
    48       67  
Expiring Between one and five years
    50       56  
      98       123  
 
28 
Retirement benefits
 
The Group operates a defined contribution pension scheme for the benefit of its employees. The assets of the scheme are administered by trustees in funds independent from those of the Group. The pension costs charged for each year are listed below:
 
   
2015
   
2014
   
2013
 
      £’000    
£'000
   
£'000
 
                     
Defined contribution pension scheme
    183       169       177  

 
29 
Share-based Payments

Share Options

The Group has issued options over ordinary shares under the Midatech Limited 2008 unapproved share option scheme and Midatech Limited 2013 approved Enterprise Incentive scheme. Exercise of an option is subject to continued employment. All options were originally issued over shares in Midatech Ltd however they were reissued during the year as options over shares in Midatech Pharma PLC.

Details of all share options granted under the Midatech Limited schemes are set out below:

Date of grant
 
At 1
January
2015
   
Granted in
2015
   
Exercised
in 2015
   
Forfeited in
2015
   
At 31
December
2015
   
Exercise
Price
 
                                     
31 December 2008
    26,122       -       -       -       26,122       £1.425  
31 December 2008
    15,500       -       -       -       15,500       £3.985  
1 April 2010
    25,110       -       -       -       25,110       £4.00  
20 August 2010
    59,666       -       -       (17,900 )     41,766       £4.19  
13 September 2011
    3,000       -       -       -       3,000       £4.19  
20 April 2012
    35,796       -       -       -       35,796       £4.19  
3 April 2014
    26,500       -       (26,500 )     -       -       £0.075  
9 May 2014
    200,000       -       -       -       200,000       £0.075  
30 June 2014
    880,000       -       -       -       880,000       £0.075  
11 July 2014
    11,000       -       -       (6,000 )     5,000       £0.075  
      1,282,694       -       (26,500 )     (23,900 )     1,232,294          

Options exercisable at 31 December 2015
    366,044  
Weighted average exercise price of outstanding options at 31 December 2015
    £0.502  
Weighted average exercise price of options exercised in 2015
    £0.075  
Weighted average exercise price of options forfeited in 2015
    4.19  
Weighted average exercise price of options granted in 2015
    n/a  
Weighted average remaining contractual life of outstanding options at 31 December 2015
 
7.8 years
 
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
Date of grant
 
At 1
January
2014
   
Granted in
2014
   
Exercised
in 2014
   
Forfeited in
2014
   
At 31
December
2014
   
Exercise
Price
 
                                     
31 December 2008
    44,622       -       -       (18,500 )     26,122       £1.425  
31 December 2008
    15,500       -       -       -       15,500       £3.985  
1 September 2009
    12,500       -       -       (12,500 )     -       £3.985  
13 November 2009
    25,000       -       -       (25,000 )     -       £4.00  
1 April 2010
    25,110       -       -       -       25,110       £4.00  
20 August 2010
    59,666       -       -       -       59,666       £4.19  
13 September 2011
    3,000       -       -       -       3,000       £4.19  
20 April 2012
    47,796       -       -       (12,000 )     35,796       £4.19  
1 May 2013
    100,000       -       -       (100,000 )     -       £6.85  
3 April 2014
    -       43,000       (16,500 )     -       26,500       £0.075  
9 May 2014
    -       200,000       -       -       200,000       £0.075  
30 June 2014
    -       880,000       -       -       880,000       £0.075  
11 July 2014
    -       11,000       -       -       11,000       £0.075  
      333,194       1,134,000       (16,500 )     (168,000 )     1,282,694          

Options exercisable at 31 December 2014
    125,847  
Weighted average exercise price of outstanding options at 31 December 2014
    £0.54  
Weighted average exercise price of options forfeited in 2014
    £5.43  
Weighted average exercise price of options granted in 2014
    £0.08  
Weighted average remaining contractual life of outstanding options at 31 December 2014
 
8.5 years
 

Date of grant
 
At 1 January
2013
   
Granted in
2013
   
Exercised
in 2013
   
Forfeited in
2013
   
At 31
December
2013
   
Exercise
Price
 
                                     
31 December 2008
    46,222       -       -       (1,600 )     44,622       £1.425  
31 December 2008
    15,500       -       -       -       15,500       £3.985  
25 March 2009
    25,000       -       -       (25,000 )     -       £3.985  
1 September 2009
    12,500       -       -       -       12,500       £3.985  
13 November 2009
    25,000       -       -       -       25,000       £4.00  
1 April 2010
    25,110       -       -       -       25,110       £4.19  
20 August 2010
    59,666       -       -       -       59,666       £4.19  
13 September 2011
    3,000       -       -       -       3,000       £4.19  
20 April 2012
    47,796       -       -       -       47,796       £4.19  
1 May 2013
    -       100,000       -       -       100,000       £6.85  
      259,794       100,000       -       (26,600 )     333,194          

Options exercisable at 31 December 2013
    148,528  
Weighted average exercise price of outstanding options at 31 December 2013
    £4.57  
Weighted average exercise price of options forfeited in 2013
    £3.83  
Weighted average exercise price of options granted in 2013
    £6.85  
Weighted average remaining contractual life of outstanding options at 31 December 2013
 
6.0 years
 

Options granted in 2014 relate to the Midatech Limited 2013 approved Enterprise Incentive scheme .

The 200,000 options issued on 9 May 2014 contained the following conditions:
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
 
·
25,000 vested immediately;

 
·
25,000 vest on 1 May 2015, a further 25,000 on 1 May 2016 and a further 25,000 on 1 May 2017;

 
·
50,000 vest when the ordinary price of a share reaches £13.70;

 
·
50,000 vest when the ordinary price of a share reaches £27.40; and

 
·
on the event of an initial public offering all of the options vest immediately and have therefore vested.

The 880,000 and 11,000 share options granted on 9 May 2014 and 11 July 2014 only vest when the Company’s share price achieves certain targets as follows:

 
·
50% vest when the share price reaches £5.31 per share;

 
·
a further 25% vests when the share price reaches £13.72; and

 
·
the remaining 25% when the share price reaches £18.86.

Otherwise the main vesting condition of all share options is that the Director or employee remain employed with the Group as at the date of exercise or continues to provide consultancy services as at the date of exercise.

The following information is relevant in the determination of the fair value of options granted during the year 2014 under the equity share based remuneration schemes operated by the Group. No share options were granted by the Company in 2015, however a number of share options and warrants were assumed by the Company on the acquisition of Dara BioSciences, Inc. (see note 12).
 
     
   
2014
 
Number of options
 
1,134,000
Option pricing models used
 
Black Scholes/ Monte Carlo
Share price
 
£2.67*
Exercise price of options issued in
year
 
7.5p
Contractual life
 
9 -10 years
Volatility
 
60%**
Expected dividend yield
 
0%
Risk free rate
 
1.51%
 
 
*
The share price used in the determination of the fair value of the options granted in 2014 was the price of ordinary shares issued at initial public offering in December 2014.
 
**
Volatility was calculated with reference to the historic share price volatility of comparable companies measured over a four-year period.

All other share options relate to the Midatech Limited 2008 unapproved share option scheme.  2013 comparative figures have been restated to reflect the share split in that year.

On 13 November 2009 subscription options over 12,500 ordinary shares exercisable over a 5-year period were issued at an exercise price of £8.00 per share.  On 5 December 2013 the expiry date of part of this option over 9,375 ordinary shares was extended to 13 November 2019.

On 15 June 2010 an option to subscribe for up to 133,808 ordinary shares was issued over a 3-year period. The option was exercised in full on 27 February 2013 for a cash consideration of £1,121,311.
 
Midatech Pharma PLC

Notes forming part of the financial statements
for the years ended 31 December 2015, 2014 and 2013

 
29
Share-based payment (continued)

Upon the issuance of convertible loan notes on 20 August 2010, subscription options over 1,282,813 ordinary shares were issued as follows:
 
 
·
A subscription option of 29,833 ordinary shares exercisable over 5 years at an exercise price of £8.38 per share. On 5 December 2013 the expiry date of part of this option over 20,883 ordinary shares was extended to 20 August 2020.

 
·
A subscription option of up to a maximum of 417,660 ordinary shares exercisable over 6 months from 19 December 2010 at an exercise price of £8.38 per share. On 19 June 2011, pursuant to the exercise of this option, 251,635 ordinary shares of 0.01p each were issued for a cash consideration of £2.1 million.

 
·
Two subscription options of up to a maximum of 417,660 ordinary shares each at an exercise price of £8.38 per share exercisable on a “follow on” basis to match any exercise of the above option. Following the exercise of the above option, the two options of 251,635 ordinary shares each were to be exercised by 19 December 2011. On 5 December 2011, 119,332 options were exercised and the remaining options over 383,938 shares were exercised on 19 December 2011.

 
·
On 29 October 2012 the Company issued subscription options over 119,332 ordinary shares at an exercise price of £8.38 per share and over 182,482 ordinary shares at an exercise price of £13.70 per share. Both options were valid until 30 June 2013. On 31 January 2013 options over 16,489 ordinary shares were exercised for an aggregate cash consideration of £225,899.
 
30 
Capital commitments

The Group had no capital commitments at 31 December 2015, 31 December 2014 and 31 December 2013.

31 
Related party transactions
  
Transactions with Monosol RX, LLC

The Directors consider Monosol RX, LLC to be a related party by virtue of the fact that Monosol RX, LLC is a shareholder of the company and are a collaborative partner in the MidaSol Therapeutics joint operation.
  
During the period £317k (2014: £273k, 2013: £542k) was receivable from Monsol RX LLC for  research services which was credited to research and development expenditure.  The year-end receivable due from Monsol RX LLC was £219k (2014: Nil, 2013: £146k).
  
32 
Contingent liabilities

The Group had no contingent liabilities at 31 December 2015, 31 December 2014 or 31 December 2015.

33 
Ultimate controlling party
 
The Directors do not consider that there is an ultimate controlling party.

 
F-56
 
 
Exhibit 4.16
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.

 
 
 
 
 
ASSET PURCHASE AGREEMENT
 
by and between
 
GALENA BIOPHARMA, INC.
 
and
 
MIDATECH PHARMA PLC
 
DECEMBER 17, 2015
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
 
TABLE OF CONTENTS
 
 
Page
   
ARTICLE I DEFINITIONS
1
 
Section 1.01
Definitions.
1
 
Section 1.02
Interpretation
9
ARTICLE II PURCHASE AND SALE OF ACQUIRED ASSETS
10
 
Section 2.01
Purchase and Sale.
10
 
Section 2.02
Assumed Liabilities
11
 
Section 2.03
Excluded Liabilities
12
 
Section 2.04
No Offset
13
ARTICLE III CLOSING
13
 
Section 3.01
Closing.
13
 
Section 3.02
Purchase Price
14
 
Section 3.03
Net Sales Milestone Payments
15
 
Section 3.04
Inventory Adjustment.
16
ARTICLE IV CONDITIONS TO CLOSING
17
 
Section 4.01
Conditions to Obligations of Purchaser
17
 
Section 4.02
Conditions to Obligation of Seller
18
 
Section 4.03
Frustration of Closing Conditions
19
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER
19
 
Section 5.01
Organization; Authority
19
 
Section 5.02
No Conflicts; Consents.
20
 
Section 5.03
Acquired Assets.
20
 
Section 5.04
Intellectual Property.
21
 
Section 5.05
Transferred Contracts
22
 
Section 5.06
Litigation
22
 
Section 5.07
Brokers or Finders
22
 
Section 5.08
Tax Matters.
22
 
Section 5.09
Product Liability
23
 
Section 5.10
Inventory
24
 
Section 5.11
Compliance with Law
24
 
Section 5.12
Permits
24
 
Section 5.13
Regulatory Matters.
24
 
Section 5.14
Solvency
26
 
Section 5.15
Financial Statements
26
 
Section 5.16
Material Information
26
ARTICLE VI COVENANTS OF SELLER
26
 
Section 6.01
Access
26
 
Section 6.02
Other Covenants
26
 
 
i
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
 
Section 6.03
Payment of Indebtedness
27
 
Section 6.04
Exclusivity
27
 
Section 6.05
Inventory
27
 
Section 6.06
SEC Reports
27
 
Section 6.07
Competing Product
28
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER
28
 
Section 7.01
Authority
28
 
Section 7.02
No Conflicts; Consents.
28
 
Section 7.03
Litigation
29
 
Section 7.04
Availability of Funds
29
 
Section 7.05
Brokers or Finders
29
ARTICLE VIII COVENANTS OF PURCHASER
30
 
Section 8.01
Advise Seller
30
 
Section 8.02
Records.
30
 
Section 8.03
DISCLAIMER
30
ARTICLE IX MUTUAL COVENANTS
31
 
Section 9.01
Efforts.
31
 
Section 9.02
Bulk Transfer Laws
31
 
Section 9.03
Transfer Taxes
31
 
Section 9.04
Purchase Price Allocation.
32
 
Section 9.05
Recordation of Transferred Intellectual Property
32
 
Section 9.06
Confidentiality and Confidential Information.
32
 
Section 9.07
NDC, UPC, Excluded Trademarks and Seller Names.
34
 
Section 9.08
Channel Liabilities
35
 
Section 9.09
Adverse Experience Reports
37
 
Section 9.10
Response to Medical Inquiries and Products Complaints
37
 
Section 9.11
Recall
37
 
Section 9.12
Post-Closing Orders and Payments.
37
 
Section 9.13
Notification of Customers
38
 
Section 9.14
Assistance with Purchaser Regulatory Filings; Transfer of NDAs.
38
ARTICLE X INDEMNIFICATION
39
 
Section 10.01
Indemnification by Seller
39
 
Section 10.02
Indemnification by Purchaser
39
 
Section 10.03
Indemnification Procedure.
40
 
Section 10.04
Procedures Related to Indemnification for Other Claims
41
 
Section 10.05
Losses Net of Insurance, Tax Benefits
41
 
Section 10.06
Limitation on Indemnification.
41
 
Section 10.07
Termination of Indemnification.
42
 
Section 10.08
Tax Treatment of Indemnification Payments
43
 
Section 10.09
No Setoff
43
 
Section 10.10
No Double Recovery
43
ARTICLE XI TERMINATION
 43
 
 
ii
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
 
Section 11.01
Termination
43
 
Section 11.02
Return of Confidential Information
44
 
Section 11.03
Effect of Termination
45
ARTICLE XII MISCELLANEOUS
45
 
Section 12.01
Assignment
45
 
Section 12.02
Non-Waiver
45
 
Section 12.03
No Third-Party Beneficiaries
45
 
Section 12.04
Severability
46
 
Section 12.05
Entire Agreement; Amendments
46
 
Section 12.06
Notices
46
 
Section 12.07
Public Announcements
47
 
Section 12.08
Governing Law; Forum
48
 
Section 12.09
WAIVER OF JURY TRIAL
48
 
Section 12.10
Expenses
49
 
Section 12.11
Relationship of the Parties
49
 
Section 12.12
Counterparts
49
 
 
iii
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
Exhibits
 
Exhibit 2.01(a)(i)
-
Transferred Intellectual Property
Exhibit 2.01(a)(ii)
-
Transferred FDA Permits
Exhibit 2.01(a)(iv)
-
Transferred Contracts
Exhibit 2.01(a)(v)
-
Inventory
Exhibit 3.01(b)(ii)
-
Form of Bill of Sale
Exhibit 3.01(b)(iii)
-
Form of Assignment and Assumption Agreement
 
Schedules
 
Schedule 4.01(f)
-
MonoSol License Agreement Amendment
Schedule 4.01(h)
-
Closing Consents
Schedule 5.02(a)
-
Third Party Consents
Schedule 5.02(a)
-
Governmental or Regulatory Approvals
Schedule 5.03
-
Retained Assets
Schedule 5.05
-
Transferred Contracts
Schedule 5.12
-
Permits
 
 
iv
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
 
ASSET PURCHASE AGREEMENT
 
THIS ASSET PURCHASE AGREEMENT (this “ Agreement ”), dated as of December 17, 2015, is made by and between GALENA BIOPHARMA, INC. , a Delaware corporation (“ Seller ”), and MIDATECH PHARMA PLC , a public limited company organized under the laws of England and Wales with registered number 09216368 (“ Purchaser ”).  Seller and Purchaser are sometimes individually referred to herein as a “ Party ” and are sometimes collectively referred to herein as the “ Parties ”.  Capitalized terms not otherwise defined in the text of this Agreement shall have the meanings set forth in Article I of this Agreement.
 
WITNESSETH:
 
WHEREAS, Seller is the licensee of certain patents and know-how relating to the proprietary product for anti-emetic treatment marketed as Zuplenz ® in the United States that contains ondansetron as its sole active ingredient and is approved under its product NDA (“ Zuplenz ”   and also referred to herein as the “ Product ”);
 
WHEREAS, Seller desires to sell, and Purchaser desires to purchase from Seller, certain assets of Seller related exclusively to Zuplenz in the Territory, upon the terms and subject to the conditions set forth in this Agreement; and
 
WHEREAS, Seller desires to assign, and Purchaser desires to assume from Seller, certain contracts of Seller relating exclusively to Zuplenz in the Territory, upon the terms and subject to the conditions set forth in this Agreement.
 
NOW, THEREFORE, in consideration of the mutual covenants herein set forth, and intending to be legally bound hereby, the Parties hereby agree as follows:
 
ARTICLE I
 
DEFINITIONS
 
Section 1.01            Definitions .
 
(a)           For purposes of this Agreement, the following terms shall have the corresponding meanings set forth below:
 
“ Acquisition ” means the consummation of the transactions contemplated by this Agreement and the Other Acquisition Documents.
 
“ Affiliate ” means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; and for the purposes of this definition, “ control ” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “ controlling ” and “ controlled ” have meanings correlative to the foregoing.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
“ Business Day ” means a day other than Saturday or Sunday or a day on which banks in London, England or the State of Delaware are required to be closed.
 
“ Closing Consideration ” means $3,750,000.
 
“ Closing Date Inventory ” means the quantities of Inventory as of the Closing Date.
 
“ Code ” means the United States Internal Revenue Code of 1986, as amended.
 
“ Competing Product ” means any oral soluble film product indicated for chemotherapy induced nausea and vomiting, radiotherapy induced nausea and/or vomiting or post-operative nausea and vomiting.
 
“ Confidential Information ” shall have the meaning set forth in the Confidentiality Agreement.
 
“ Confidentiality Agreement ” means that certain Mutual Confidential Disclosure Agreement between the Parties dated October 8, 2015.
 
“ Contracts ” means all leases (whether for real or personal property), subleases, indentures, licenses, agreements, contracts, subcontracts, purchase orders, instruments, notes, options, warranties, commitments and all other legally binding arrangements, whether written or oral.
 
“ Dollars ” and “ $ ” mean lawful currency of the United States of America.
 
“ Excluded Trademarks ” shall mean, whether registered or unregistered, all trademarks, trade dress, service marks, service names, brand marks, trade names, brand names, logos, business symbols, slogans or other designations of origin and all registrations, registration applications and rights relating thereto, other than the trademarks included in the Transferred Intellectual Property.
 
“ FDA ” means the United States Food and Drug Administration.
 
“ FDA Act ” means the United States Federal Food, Drug and Cosmetic Act of 1938, as amended.
 
“ Final Closing Date Inventory ” means Closing Date Inventory (i) as shown in Purchaser’s calculation delivered pursuant to Section 3.04(a) if no notice of disagreement with respect thereto is duly delivered pursuant to Section 3.04(b) ; or (ii) if such a notice of disagreement is delivered, (A) as agreed by Purchaser and Seller pursuant to Section 3.04(c) or (B) in the absence of such agreement, as shown in the Independent Auditor’s calculation delivered pursuant to Section 3.04(c) .
 
 
2
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
“ GAAP ” means generally accepted accounting principles in the United States of America, as in effect from time to time and consistently applied.
 
“ Governmental or Regulatory Authority ” means any court, tribunal, arbitrator, agency, commission, official or other instrumentality of any country, federal, state, county, city or other political subdivision, foreign or domestic, including without limitation the FDA, the SEC, the United Kingdom Financial Conduct Authority, the London Stock Exchange plc, the AIM Market of the London Stock Exchange plc, the NASDAQ Stock Market LLC and any other governmental or regulatory instrumentality with responsibility for granting any licenses, registrations or regulatory approvals.
 
“ Health Law ” means any Law the purpose of which is to ensure the safety, efficacy and quality of medicines by regulating the research, development, manufacturing, commercialization and distribution of these products, including Laws relating to good laboratory practices, good clinical practices, investigational use, product marketing authorization, manufacturing compliance and approval, good manufacturing practices, labeling, advertising, privacy, promotional practices, pricing, safety surveillance, record keeping and filing of required reports, including the FDA Act, the Comprehensive Drug Abuse Prevention and Control Act of 1970, the Controlled Substances Act, the Patient Protection and Affordable Care Act, the Health Insurance Portability and Accountability Act of 1996, the Public Health Service Act, as amended, and applicable regulations issued by a Governmental or Regulatory Authority.
 
“ Income Tax ” means any federal, state, local, or non-U.S. income tax, including any interest, penalty, or addition thereto, whether disputed or not.
 
“ Income Tax Return ” means any return, declaration, report, claim for refund, or information return or statement relating to Income Taxes, including any schedule or attachment thereto, and including any amendment thereof.
 
“ Insolvent ” means that the fair value of the assets of the relevant Person, at a fair valuation, exceeds the sum of the debts and other Liabilities of such Person.
 
“ Intended Use ” means the distribution, marketing, sale, and manufacture of Zuplenz in the Territory.
 
“ Inventory ” means the inventory of Zuplenz owned by Seller or its Subsidiaries, including, but not limited to, the existing finished quantities, work in process, raw materials, constituent substances, materials (including but not limited to, packaging materials and other collateral), stores and supplies, as well as any trade, sample or prototype inventories owned by Seller and its Subsidiaries of the Product in the Territory, as set forth on Exhibit 2.01(a)(v) .  For purposes of “Purchaser Closing Date Inventory Adjustment Amount,” “Inventory” means all items of inventory with an expiration date of no less than 24 months following the Closing Date and in quantities no less than the quantities set forth on Exhibit 2.01(a)(v) .
 
 
3
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
 “ Law ” means, individually and collectively, all laws, statutes, rules, regulations, ordinances, directives and other pronouncements or orders of any kind whatsoever of any Governmental or Regulatory Authority within the applicable jurisdiction.
 
“ Legal Proceeding ” means any claim, action, suit, case, litigation, proceeding, charge, criminal prosecution, judicial, governmental or regulatory investigation, arbitration, mediation or alternative dispute resolution proceeding.
 
“ Liabilities ” means, without limitation, any direct or indirect liability, indebtedness, claim, assessment, loss, damages (compensatory, punitive or other), obligation, deficiency, guaranty, endorsement, commitment, reimbursement, cost and expenses of any kind or nature, whether accrued, absolute, asserted, unasserted, choate, inchoate, actual, contingent, matured, unmatured, liquidated, unliquidated, secured, unsecured, present or future, known or unknown.
 
“ Licensed Intellectual Property ” means all intellectual property rights in the
Territory licensed to Seller or any Seller Affiliate pursuant to the MonoSol License Agreement, including, but not limited to each of (i) United States Patent Number 8,580,830 and (ii) United States Patent Number 9,095,577, including any divisions, continuations, reissues and reexaminations based upon any patent application with common priority thereto.
“ Liens ” means any and all liens, pledges, hypothecations, claims, encumbrances, security interests, mortgages, restrictions, options or charges of any nature.
 
“ Marketing and Reference Materials ” means (i) written records of marketing research materials owned or controlled by Seller which relate exclusively to the Product in the Territory, and (ii) written manuals and reference guides owned or controlled by Seller relating to the handling of reports of adverse events related to the Product in the Territory.
 
“ Material Adverse Effect ” means any event, condition, change, circumstance, development or state of facts, individually or in the aggregate, that has, or could reasonably be expected to have a material, adverse effect on the Acquired Assets, but excluding the events or effects of: (i) changes to the pharmaceutical industry and markets in which Purchaser or Seller operate, to the extent such changes do not have a disproportionately adverse effect on the Acquired Assets; (ii) changes in the United States, United Kingdom or world financial markets in general; (iii) changes arising in connection with earthquakes, hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war, sabotage or terrorism or military actions existing or underway as of the date hereof; (iv) any action taken by Purchaser or its Affiliates with respect to the transactions contemplated hereby or with respect to an Acquired Asset; or (v) any effect resulting from the public announcement of this Agreement, compliance with terms of this Agreement or the consummation of the transactions contemplated by this Agreement.
 
 
4
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
“ Medicaid Rebates ” means all state and federal Medicaid rebates and reimbursements related to the Products.
 
“ MonoSol   License Agreement ” means that certain License Agreement by and between Seller and MonoSol Rx LLC dated July 17, 2014, assigned to Purchaser as one of the Transferred Contracts hereunder, as the same shall be amended in accordance with Schedule 4.01(f).
 
“ NDA ” means a New Drug Application or supplemental New Drug Application, as defined in the United States Federal Food, Drug and Cosmetic Act.
 
“ NDC Number ” shall mean the national drug code number associated with the Product.
 
“ Net Sales ” means, for any period, the aggregate of the gross amounts invoiced or otherwise billed, charged or received by a Selling Person for the arms’ length sale or other commercial disposition to non-Affiliates of such Selling Person of a Product (whether such Selling Person has the right to sell Zuplenz ), less the following deductions to the extent specifically related to a Product and actually allowed, incurred or paid during such period:  (i) reasonable cash discounts, returns, allowances, rebates, or chargebacks; (ii) sales, value-added, excise taxes, tariffs and duties, and other taxes directly related to the sale (but excluding income or net profit taxes or franchise taxes of any kind); (iii) Medicaid and other reimbursement related rebates, co-pay reimbursements, product cost per unit paid to the manufacturer on a delivered basis, including freight and duty costs, distribution and wholesaler fee for service; and (iv) amounts allowed or credited on returns, provided that all of the foregoing deductions are incurred in the ordinary course and calculated in accordance with GAAP during the applicable calculation period throughout the Selling Person’s organization.  All such discounts, allowances, credits, rebates and other deductions shall be fairly and equitably allocated to a Product and other products or services of a Selling Person, such that a Product does not bear a disproportionate portion of such deductions.  Any disposal of a Product at no charge for, or use without charge in, clinical or preclinical trials (but excluding post-approval clinical trials for which compensation is received by the Selling Person), given as free samples, or distributed at no charge to patients unable to purchase the same shall not be included in Net Sales, in each case, except to the extent that a Selling Person has received any consideration for such Product.
 
For sake of clarity and avoidance of doubt, the transfer of a Product by a Selling Person or one of its Affiliates to another Affiliate of such Selling Person or to a sub-licensee of such Selling Person for resale shall not be considered a sale; in such cases, Net Sales shall be determined based on the amount invoiced or otherwise billed by such Affiliate or sub-licensee to an independent Third Party, less the Net Sales deductions allowed under this definition.
 
 
5
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
In the case of any sale of a Product for value other than in an arm’s length transaction exclusively for cash, such as barter or counter-trade, Net Sales shall be calculated based on the fair market value of the non-cash consideration received in connection with such sale and based on the full list price for non-arm’s length transactions.  If a Product is sold together with another product and not separately invoiced or billed, the Parties shall agree upon the appropriate allocation of the amount received in consideration for the applicable Product, which allocation shall reflect the fair market value of the applicable Product and the other product.
 
“ Other Acquisition Documents ” means (i) the Bill of Sale, and (ii) the Assignment and Assumption Agreement.
 
“ Payment Claims ” means any and all payments, rebates, administrative fees or chargebacks due under any state or federal program or due to customers under any private party managed care contracts or under any other contract or program of any nature whatsoever with private parties, except for Medicaid Rebates.
 
“ Permitted Liens ” shall mean (i) Liens for Taxes not yet due, payable, delinquent or subject to penalties for non-payment, or which are being contested in good faith in the ordinary course of business by appropriate proceedings and (ii) mechanics’, materialmen’s, carriers’, workmen’s, warehousemen’s, repairmen’s, landlords’ or other like Liens that are incurred in the ordinary course of business and are not delinquent and which are not, individually or in the aggregate, material to the Acquired Assets.
 
“ Person ” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, Governmental or Regulatory Authority, or any other form of legal entity not specifically listed herein.
 
“ Product Registration ” means a list of all governmental authorizations granted to Seller by, or applications therefor pending with, any Governmental or Regulatory Authority in the Territory to manufacture, market, import, distribute and/or sell any of the Products in the Territory, except for those Governmental or Regulatory Authority authorizations that the failure to possess would not be material to the operation of the business related to the Products taken as a whole.
 
“ Purchaser Closing Date Inventory Adjustment Amount ” means, with respect to each item of Inventory, the product of (i) Seller’s actual cost of such item of Inventory as of the Closing Date and (ii) the difference between the quantities of such item of Inventory listed on Exhibit 2.01(a)(v) and the quantities included in the Final Closing Date Inventory.
 
“ Purchaser Liability Cap ” means an amount equal to [***].
 
 
6
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
“ Seller Closing Date Inventory Adjustment Amount ” means, with respect to the Inventory, the product of (i) Seller’s actual cost of such Inventory and (ii) the difference between the quantities of such Inventory listed on Exhibit 2.01(a)(v) and the quantities included in the Final Closing Date Inventory.
 
“ Seller Liability Cap ” means an amount equal to [***].
 
“ Seller Names ” shall mean the names and logos of Seller and any of its Affiliates.
 
“ Seller’s Knowledge ” means the actual knowledge of the following individuals, after such individuals have made reasonable due inquiry: Mark Schwartz, Joseph Lasaga, Christopher Lento, Ryan Dunlap, Nate Ide, James Datz and Pat Murphy.
 
“ Selling Person ” means the Purchaser, each of its Affiliates and each (A) licensee, sub-licensee, assignee or other grantee of rights from Purchaser or any of its Affiliates or another Selling Person to market or sell Zuplenz , (B) buyer, transferee or assignee of any Transferred Intellectual Property or Licensed Intellectual Property from Purchaser or its Affiliates or another Selling Person, or (C) any Affiliate of the foregoing.
 
“ Tax ” or “ Taxes ” means all federal, state, local and foreign income, payroll, withholding, excise, value added, sales (including bulk sales), use, personal property, use and occupancy, business and occupation, mercantile, real estate, gross receipts, license, employment, severance, stamp, premium, windfall profits, social security (or unemployment), disability, transfer, registration, alternative or add-on minimum, estimated or capital stock and franchise and other taxes and assessments of any kind whatsoever,  (ii)  all interest or penalties, addition to tax or additional amount imposed, assessed or collected by any Taxing Authority, in each case, regardless of whether disputed, and (iii) any liability for the payment of any amounts of the type described in clause (i) or (ii) of this definition as a result of being a member of an affiliated, consolidated, combined or unitary group, as a result of any tax sharing or tax allocation agreement, arrangement or understanding, or as a result of being liable for another Person’s taxes as a transferee or successor, by contract or otherwise.
 
“ Tax Return ” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
 
“ Taxing Authority ” means any Governmental or Regulatory Authority exercising any authority to impose, regulate or administer the imposition of Taxes.
 
“ Territory ” means the United States of America including its territories and possessions.
 
“ Third Party ” means any Person other than:  (1) Purchaser or Seller, and (2) any Affiliates of Purchaser or Seller.
 
 
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(b)           The following terms have the meanings given to such terms in the Sections set forth below:
 
Term
Section
Acquired Assets
2.01(a)
Additional Assumption Documents
3.01(b)(vi)
Additional Transfer Documents
3.01(c)(v)
Agreement
Recitals
Allocation
9.04(a)
Annual Net Sales Milestones
3.03(a)
Assignment and Assumption Agreement
3.01(b)(iii)
Assumed Liabilities
2.02
Bill of Sale
3.01(b)(ii)
Business Employee
8.03
Chargeback Claims
9.07(e)(i)
Claim Dispute Notice
10.04
Closing
3.01(a)
Closing Date
3.01(a)
Closing Date Inventory Statement
3.04(a)
Commercial Rebates
9.07(d)(i)(a)
Commercial Rebate Tail Period
9.07(d)(i)
Confidentiality Period
9.06(e)
Direct Claim Notice
10.04
Excluded Assets
2.01(b)
FDCA
5.13(a)
Food and Drugs Act
5.13
Government Rebate Tail Period
9.07(c)(i)(A)
Government Rebates
9.07(c)(i)
Indemnitee
10.03(a)
Indemnitor
10.03(a)(i)
Independent Auditor
8.02
Inventory
2.01(a)(iv)
Losses
10.01
NDCs
9.07
Net Sales Milestones
3.03
Non-Responsible Party
9.07(c)(ii)
Party or Parties
Recitals
Plan
5.14(a)
Product or Products
Recitals
Product Inventory List
5.11
Purchase Price
3.02
Purchaser
Recitals
 
 
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Purchaser Indemnitees
10.01
Purchaser Inventory Payment
3.04(e)
Purchaser Proprietary Information
9.06(b)
Quarterly Net Sales Milestones
3.03
Regulatory Agency
5.13
Responsible Party
9.07(c)(ii)
Seller
Recitals
Seller Indemnitees
10.02
Seller Inventory Payment
3.04(e)
Seller Proprietary Information
9.06(c)
Termination Date
11.01(b)
Third Party Claim
10.03(a)
Transfer Taxes
9.03
Transferred Contracts
2.01(a)(iii)
Transferred Employees
2.02(iv)
Transferred FDA Permits
2.01(a)(ii)
Transferred Intellectual Property
2.01(a)(i)
UPCs
6.06(a)
Zuplenz
Recitals
Section 1.02             Interpretation .  The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth therein); (ii) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof; (iii) the word “extent” in the phrase “to the extent” means the degree to which a subject or other thing extends and such phrase does not mean simply “if”; (iv) all references herein to Articles, Sections, Exhibits or Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules of this Agreement; and (v) the headings contained in this Agreement or any Exhibit or Schedule and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  All Schedules attached hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein.  Any capitalized terms used in the Exhibits and Schedules attached hereto but not otherwise defined therein, shall have the meaning as defined in this Agreement.  In the event of an ambiguity or a question of intent or interpretation, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any provisions of this Agreement.
 
 
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ARTICLE II
 
PURCHASE AND SALE OF ACQUIRED ASSETS
 
Section 2.01            Purchase and Sale .
 
(a)           Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell, assign, transfer, convey and deliver, or cause to be sold, assigned, transferred, conveyed and delivered, to Purchaser, and Purchaser shall purchase and acquire from Seller, free and clear of all Liens, all of the rights, title and interest of Seller and its Subsidiaries in, to and under the assets set forth below, whether accrued, contingent or otherwise, wherever located (collectively, the “ Acquired Assets ”):
 
(i)           the domain name and copyrights of Seller and its Subsidiaries which are related exclusively to the Product and are set forth on Exhibit 2.01(a)(i) (the “ Transferred Intellectual Property ”);
 
(ii)           all governmental, regulatory filings, correspondence, submissions, marketing authorizations, permits, licenses, registrations (including Product Registration data), regulatory clearances, certificates, approvals, variances, consents and similar items of Seller and its Subsidiaries with the FDA exclusively related to the Intended Use of Zuplenz in the Territory as set forth on Exhibit 2.01(a)(ii) (the “ Transferred FDA Permits ”);
 
(iii)           to the extent transferrable, all state governmental and federal governmental (other than the Transferred FDA Permits), regulatory filings, correspondence, submissions, marketing authorizations, permits, licenses, registrations (including product registration data), regulatory clearances, certificates, approvals, variances, consents and similar items of Seller and its Subsidiaries exclusively related to the Intended Use of the Product in the Territory (“ State Permits ”), including those related to marketing, pricing or reimbursement approval (such listed State Permits, the “ Transferred State Permits ” and, together with the Transferred FDA Permits, the “ Permits ”);
 
(iv)           the Contracts set forth on Exhibit 2.01(a)(iv) , including without limitation the MonoSol License Agreement (the “ Transferred Contracts ”), and all rights and claims of Seller arising under or with respect to the Transferred Contracts, including all rights under any warranties, indemnities and similar rights against third parties to the extent related to any Acquired Assets;
 
(v)           the Inventory;
 
 
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(vi)           copies of (A) all current marketing and sales assets that relate exclusively to Zuplenz and (B) all books, ledgers, files, reports, data, plans, records and training materials that relate exclusively to Zuplenz ;
 
(vii)           all claims, causes of action or other rights of the Seller, if any, arising out of any of the Acquired Assets arising before, on or after the Closing Date;
 
(viii)           all prepaid expenses, credits, advance payments, claims, security, rebates, refunds, rights of recovery, rights of set-off, rights of recoupment, deposits, charges, sums and fees (including any such item relating to the payment of Taxes) related to the Acquired Assets; and
 
(ix)           any goodwill associated with the Acquiring Assets.
 
(b)           Purchaser is not purchasing or acquiring, and Seller is not selling or assigning, any assets or properties of Seller or any of its Affiliates that are not specifically listed above, and all such other assets and properties shall be excluded from the Acquired Assets (the “ Excluded Assets ”).
 
Section 2.02            Assumed Liabilities .  Upon the terms and subject to the conditions set forth herein, as partial consideration for the Acquired Assets, Purchaser agrees, effective at the Closing, to assume and to satisfy and discharge when due the following, but only the following, in accordance with the Assignment and Assumption Agreement, Liabilities of Seller, in each case, excluding the Excluded Liabilities (collectively, the “ Assumed Liabilities ”):
 
(a)           all Liabilities arising under or relating to the Transferred Contracts arising on or after the Closing;
 
(b)           all Liabilities arising under or relating to the Permits arising on or after the Closing;
 
(c)           all Liabilities arising out of Purchaser’s use of the Seller Names, Excluded Trademarks, UPC, NDC and the activities contemplated by Section 9.07 hereof arising on or after the Closing;
 
(d)           those Liabilities which are allocated to Purchaser with respect to the Channel Liabilities, as set forth in Section 9.08 hereof arising on or after the Closing; and
 
(e)           any Liabilities arising from or relating to the development, testing, manufacture, distribution, marketing, promotion or sale of Zuplenz in the Territory arising on or after the Closing (other than any Liability arising out of or relating to a breach of any representation or warranty made by Seller in Article V hereof occurring prior to the Closing).
 
 
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Section 2.03            Excluded Liabilities .  Notwithstanding anything to the contrary contained in this Agreement or any of the Other Acquisition Documents, Seller acknowledges that Seller shall retain and satisfy, and Purchaser shall not assume or otherwise be responsible or liable for, any Liabilities or obligations of Seller other than the Assumed Liabilities, whether or not relating to the Acquired Assets (collectively, the “ Excluded Liabilities ”).  For the avoidance of doubt, Excluded Liabilities shall include the following:
 
(a)           those Liabilities which are allocated to Seller with respect to the Channel Liabilities, as defined and set forth in Section 9.08 hereof;
 
(b)           any Liability arising under or relating to the Transferred Contracts arising prior to the Closing Date, including any obligation for monies due but not yet payable (including, but not limited to, royalties or milestones, as applicable) as of the Closing Date under any Transferred Contract;
 
(c)           any Liabilities resulting from (1) any breach or violation of any Transferred Contract by Seller occurring prior to the Closing or (2) any act or omission of Seller prior to the Closing that would have constituted a breach or violation upon notice or passage of time under any Transferred Contract;
 
(d)           any product Liability or similar claim for injury to a Person or property which arises out of or is based upon any express or implied representation, warranty, agreement or guaranty made by Seller, or by reason of the improper performance or malfunctioning of an Acquired Asset, improper design or manufacture, failure to adequately package, label or warn of hazards or other related product defects of any Product manufactured or sold prior to the Closing Date, or any service performed by Seller prior to the Closing Date;
 
(e)           any recall, design defect or similar claims of any Product sold or any service performed by Seller prior the Closing Date;
 
(f)           any Liability resulting from or arising out of the conduct of business by Seller or any Affiliate of Seller or the ownership of the Excluded Assets, whether before, on or after the Closing;
 
(g)           all Liabilities for rebates or chargebacks with respect to the Product dispensed prior to the Closing Date;
 
(h)           any Liability of Seller for expenses or fees incident to or arising out of the negotiation, preparation, approval or authorization of this Agreement, the Other Acquisition Documents or the consummation (or preparation for the consummation) of the transactions contemplated hereby and thereby (including all attorneys’ and accountants’ fees and brokerage fees incurred by or imposed upon Seller);
 
(i)           any Liability of Seller under this Agreement or the Other Acquisition Documents;
 
 
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(j)           any Taxes for which Seller is liable, including any Liability of Seller for unpaid Taxes of any Person under Treasury Regulations §1.1502-6 (or any similar provision of state, local or foreign Law), as transferee or successor by contract or otherwise;
 
(k)           any Liability resulting from or arising out of any of the Excluded Assets and not specifically assumed by Purchaser as an Assumed Liability;
 
(l)           any Liabilities in respect of any pending or threatened Legal Proceeding arising out of, relating to or otherwise in respect of the operation of the Acquired Assets to the extent such Legal Proceeding relates to such operation on or prior to the Closing Date; and
 
(m)           any Liabilities arising out of, in respect of or in connection with the failure by Seller or any of its Affiliates to comply with any Law.
 
Section 2.04            No Offset .  Each of Purchaser’s and Seller’s obligations under Article II will not be subject to offset or reduction by reason of any actual or alleged breach of any representation, warranty, covenant or agreement contained in this Agreement, any Other Acquisition Document or any right or alleged right to indemnification hereunder.
 
ARTICLE III
 
CLOSING
 
Section 3.01            Closing .
 
(a)           Subject to the terms and conditions of this Agreement, the closing of the Acquisition (the “ Closing ”) shall be held remotely by exchange of electronic copies of the agreements, documents, certificates and other instruments set forth in Section 3.01(b) and Section 3.01(c) at 10:00 a.m. on the date which is five Business Days after the conditions to the Closing set forth in Article IV shall have been satisfied or waived (other than those conditions which by their nature are to be fulfilled at the Closing, but subject to the fulfillment or waiver of such conditions), or on any other date as mutually agreed by the Parties.  The date on which the Closing shall occur is hereinafter referred to as the “ Closing Date ”.  The Closing shall be deemed to be effective as of 12:00:01 a.m. Eastern Standard Time on the Closing Date.
 
(b)           At the Closing, Purchaser shall deliver or cause to be delivered to Seller:
 
(i)           an amount equal to the Closing Consideration by wire transfer of immediately available funds denominated in Dollars to a bank account designated in writing by Seller at least two Business Days prior to the Closing Date;
 
(ii)           an executed counterpart of the Bill of Sale, in the form attached hereto as Exhibit 3.01(b)(ii) (the “ Bill of Sale ”);
 
 
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(iii)           an executed counterpart of the assignment and assumption agreement, in the form attached hereto as Exhibit 3.01(b)(iii) (the “ Assignment and Assumption Agreement ”);
 
(iv)           such other executed instruments of transfer, conveyance, assignment, and assumption as the Seller may reasonably request in order to effect the sale, transfer, conveyance and assignment to the Purchaser of all obligations, liabilities, right, title and interest in and to the Assumed Liabilities or to give effect to the transactions set forth herein (the “ Additional Assumption Documents ”);
 
(v)           a certificate, dated as of the Closing Date, executed by an authorized officer of Purchaser, in his or her capacity as such, confirming the satisfaction of the conditions specified in Sections 4.02(b) and Section 4.02(c) .
 
(c)           At the Closing, Seller shall deliver or cause to be delivered to Purchaser:
 
(i)           an executed counterpart of the Bill of Sale;
 
(ii)           an executed counterpart of the Assignment and Assumption Agreement;
 
(iii)           such other executed instruments of transfer, conveyance and assignment as the Purchaser may reasonably request in order to effect the sale, transfer, conveyance and assignment to the Purchaser of all right, title and interest in and to the Acquired Assets or to give effect to the transactions set forth herein (the “ Additional Transfer Documents ”); and
 
(iv)           and a certificate, dated as of the Closing Date, executed by an authorized officer of Seller, in his or her capacity as such, confirming the satisfaction of the conditions specified in Section 4.01(b) , Section 4.01(c) and Section 4.01(e) .
 
(d)           Following the Closing Date, Purchaser may submit to Seller, in writing, a request for Seller to cause delivery to Purchaser of the tangible Acquired Assets.  Promptly following receipt of such request, Seller shall arrange for delivery to Purchaser, at an address specified by Purchaser in writing, of such tangible Acquired Assets.  For the avoidance of doubt, documents and other intangible Acquired Assets may be delivered electronically.
 
Section 3.02                           Purchase Price .  Upon the terms and subject to the conditions contained in this Agreement, as consideration for the Acquired Assets to be sold, transferred, conveyed, assigned and delivered to Purchaser pursuant to Section 3.01 , Purchaser shall (i) at Closing pay to the seller an aggregate amount equal to the Closing Consideration; (ii) at the Closing, assume the Assumed Liabilities; (iii) if and to the extent earned in accordance with Section 3.03 , pay the Seller the Net Sales Milestone Payment(s), and (iv) pay the Purchaser Closing Date Inventory Adjustment Amount to Seller, or Seller shall pay the Seller Closing Date Inventory Adjustment Amount to Purchaser, as provided in Section 3.04 hereof (collectively, the “ Purchase Price ”).  For the avoidance of doubt, Purchaser shall assume Seller’s payment obligations under the Transferred Contracts, including without limitation the payment obligations under the MonoSol License Agreement (other than those payment obligations set forth in Section 7.1.1 . of the MonoSol License Agreement).
 
 
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Section 3.03            Net Sales Milestone Payments .
 
(a)           In the event that: (i) there are Net Sales of [***] or greater in any [***] occurring in [***] (the “ Quarterly Net Sales Milestone ”), and (ii) the applicable “Annual Net Sales” dollar value set forth below is achieved during the Milestone Period (based on the Net Sales of the Product in any full calendar year) (each, an “ Annual Net Sales Milestone ” and, collectively, the “ Annual Net Sales Milestones ”), Purchaser shall, in each case, pay to Seller each of the one-time only, non-refundable, non-creditable net sales milestones (each, a “ Net Sales Milestone Payment ” and, collectively, the “ Net   Sales Milestone Payments ”) in respect of the Acquired Assets as set forth below:  Each Net Sales Milestone Payment shall be paid by wire transfer in immediately available funds to an account or accounts designated in writing by Seller; which payment shall be made no later than 45 days following the achievement of the Quarterly Net Sales Milestone or, for all other Net Sales Milestone Payments, following the end of the applicable calendar year; provided that more than one Net Sales Milestone Payment may become payable in the same calendar year as any other Net Sales Milestone Payment.  Seller acknowledges the right to receive Net Sales Milestone Payments is not a security, shall not be represented by a certificate or other instrument and shall not represent a security or ownership interest in Purchaser, its Affiliates or any of their respective assets.
 
Net Sales Milestones:
Net Sales Milestone Payment:
Achievement of Quarterly Net Sales Milestone
[***]
Annual Net Sales
[***]
[***]
[***]
[***]
[***]
[***]
 
(b)           Commencing with the first calendar quarter following the Closing Date and continuing until the earlier to occur of (i) the payment to Seller of the Net Sales Milestone Payment with respect to the achievement of annual Net Sales of [***] or (ii) December 31, 2022 (such period, the “ Milestone Period ”), within 45 days after the end of each calendar quarter, Purchaser shall deliver to Seller a statement (each, a “ Net Sales Statement ”) setting forth (A) the amount of Net Sales with respect to such calendar quarter and with respect to the period from January 1 of the calendar year of which such calendar quarter is a part through the end of such calendar quarter and (B) the “gross to net” adjustments with respect to the calculation of Net Sales for such calendar quarter and calendar year (which calculation shall be made in conformity with, and show the individual components of, the definition of Net Sales). For the avoidance of doubt, the Seller shall be entitled to receive a Net Sales Statement within 45 days after the end of the [***] calendar year.
 
 
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(c)           Any dispute with respect to a Net Sales Statement shall be resolved in accordance with  Section 3.03(b) .  If such resolution results in an adjustment to the amount payable by Purchaser to Seller pursuant to  Section 3.03(a) , Purchaser shall pay to Seller cash in the amount of such adjustment within five Business Days after such dispute is finally resolved, which payment shall be by wire transfer of immediately available funds to the account designated by Seller.
 
(d)           For the avoidance of doubt: (i) the total amount of Net Sales Milestone Payments by the Purchaser shall not exceed $26,000,000 under this Agreement; (ii) the Purchaser shall not be required to make more than [***] for the achievement of the Quarterly Net Sales Milestone; and (iii) the Purchaser shall not be required to make more than one Net Sales Milestone Payment in respect of the achievement of any single Annual Net Sales Milestone. For example, (x) with respect to Quarterly Net Sales Milestone, if the Net Sales of the Product is equal to at least [***] during the [***] in calendar year [***], the total Net Sales Milestone Payment owed would be [***], and thereafter no further Net Sales Milestone Payments would be payable to Seller in connection with any Quarterly Net Sales Milestones achieved in any other period during calendar years [***], and (y) with respect to the Annual Net Sales Milestones, if the Net Sales of the Product is equal to [***] in the [***] calendar year, the total Net Sales Milestone Payment would be [***], and thereafter no further Net Sales Milestone Payments would be payable to Seller in connection with any Annual Net Sales Milestones achieved in [***] calendar year during the Milestone Period.
 
Section 3.04            Closing Date Inventory Adjustment.
 
(a)           As promptly as practicable, but no later than sixty days after the Closing Date, Purchaser shall cause to be prepared and delivered to Seller a statement calculating the Closing Date Inventory (the “ Closing Date Inventory Statement ”).
 
(b)           If Seller disagrees with Purchaser’s calculation of the Closing Date Inventory set forth in the Closing Date Inventory Statement, Seller may, within ten Business Days after delivery of the Closing Date Inventory Statement, deliver a written notice to Purchaser disagreeing with such calculation and setting forth Seller’s calculation of the Closing Date Inventory. Any such notice of disagreement shall specify those items or amounts as to which Seller disagrees.  If Seller does not deliver to Purchaser a written notice of disagreement within such ten Business Day period, then Sellers shall be deemed to have agreed to such Closing Date Inventory Statement.
 
 
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(c)           If a notice of disagreement shall be duly delivered pursuant to Section 3.04(b) , Purchaser and Seller shall, during the ten Business Days following such delivery, use their good faith and commercially reasonably efforts to reach agreement on the disputed items or amounts in order to determine, as may be required, the Closing Date Inventory.  If during such period, Purchaser and Seller are unable to each such agreement, the disputed items be submitted to and determined by an independent accounting firm selected by Purchaser and Seller (the “ Independent Auditor ); provided , however , the Parties may mutually agree on an extended period to resolve any such dispute before submitting it to the Independent Auditor.  In making such calculation, the Independent Auditor shall only consider those items or amounts in the Closing Date Inventory Statement and Seller’s calculation of Closing Date Inventory as to which Seller has disagreed. The Independent Auditor shall deliver to Purchaser and Seller, as promptly as practicable (but in any case no later than twenty Business Days from the date of the engagement of the Independent Auditor), a report setting forth such calculation. Such report shall be final and binding upon Purchaser and Seller.  The cost of such review and report shall be borne equally by Purchaser and Seller; provided, however, that if the Independent Auditor’s report is substantially in agreement with either party’s calculations included in the Closing Date Inventory Statement, the cost of such review and report shall be borne solely by the other party.
 
(d)           Purchaser and Seller shall, and shall cause their respective representatives to, cooperate and assist in the preparation of the Closing Date Inventory Statement and the calculation of the Closing Date Inventory and in the conduct of the review referred to in this Section 3.04 , including the making available, to the extent necessary, of books, records and personnel.
 
(e)           If the Final Closing Date Inventory is greater than the Inventory in the quantities listed on Exhibit 2.01(a)(v), then the Purchaser shall be obligated to pay to Seller an amount in cash equal to the Purchaser Closing Date Inventory Adjustment Amount within three Business Days after the Final Closing Date Inventory is determined.  If the Final Closing Date Inventory is less than the Inventory in the quantities listed on Exhibit 2.01(a)(v), then the Seller shall be obligated to pay to Purchaser an amount in cash equal to the Seller Closing Date Inventory Adjustment Amount within three Business Days after the Final Closing Date Inventory is determined.  Any payment that any party is obligated to make to the other party pursuant to this Section 3.04 shall be paid by wire transfer of immediately available funds into an account designated by such other party.
 
ARTICLE IV
 
CONDITIONS TO CLOSING
 
Section 4.01           Conditions to Obligations of Purchaser .  The obligation of Purchaser to effect the Closing is subject to the satisfaction (or written waiver by Purchaser) at or prior to the Closing of the following conditions:
 
(a)            No Injunctions or Restraints .  No Law, temporary restraining order, preliminary or permanent injunction or other order enacted, entered, promulgated, enforced or issued by any Governmental or Regulatory Authority or other legal restraint or prohibition by a Governmental or Regulatory Authority shall be in effect and which has the effect of making the Acquisition illegal or otherwise preventing the consummation of the Acquisition.
 
 
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(b)            Accuracy of Representations and Warranties .  All of the representations and warranties made by Seller in Article V that are qualified by any reference to any materiality qualifications, including any Material Adverse Effect qualification, shall each be true and correct as of the date hereof and as of the Closing Date as though such representations and warranties were made at such date (except that any representations and warranties that are made only as of a specified date shall be true and correct only as of such date), and all other representations and warranties made by the Seller shall each be true and correct in all material respects (except for the representations and warranties made in this Agreement by the Seller in   Section 5.01 , Section 5.02 , Section 5.03(b) , Section 5.07 and Section 5.08 (the “ Seller Fundamental Representations ”) which shall be true and correct in all respects) as of the date hereof and as of the Closing Date as though such representations and warranties were made at such date (except that any representations and warranties that are made only as of a specified date shall be true and correct only as of such date).
 
(c)            Performance of Covenants .  The covenants and obligations that Seller is required to perform or comply with under this Agreement on or before the Closing Date shall have been duly performed and complied with by Seller in all material respects.
 
(d)            Deliverables .  Purchaser shall have received each of the items set forth in Section 3.01(c) .
 
(e)            No Material Adverse Effect .  No Material Adverse Effect shall have occurred or there shall be no event, change or occurrence that would reasonably likely to have a Material Adverse Effect.
 
(f)            MonoSol License Agreement .  The MonoSol License Agreement shall have been amended in accordance with the terms on Schedule 4.01(f) .
 
(g)            Reserved .
 
(h)            Closing Consents . The Seller shall have obtained, and delivered a copy to Purchaser, all of the consents set forth on Schedule 4.01(h) .
 
Section 4.02            Conditions to Obligation of Seller .  The obligation of Seller to, and to cause its Affiliates to, effect the closing of the Acquisition is subject to the satisfaction (or written waiver by Seller) as of the Closing of the following conditions:
 
(a)            No Injunctions or Restraints .  No Law, temporary restraining order, preliminary or permanent injunction or other order enacted, entered, promulgated, enforced or issued by any Governmental or Regulatory Authority or other legal restraint or prohibition by a Governmental or Regulatory Authority shall be pending or in effect seeking to prevent or preventing the Acquisition.
 
 
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(b)            Accuracy of Representations and Warranties .  All of the representations and warranties made by Purchaser in Article VII that are qualified by any materiality qualifications shall each be true and correct as of the Closing Date as though such representations and warranties were made at such date (except that any representations and warranties that are made only as of a specified date shall be true and correct only as of such date), and all other representations and warranties of the Purchaser shall each be true and correct in all material respects as of the Closing Date as though such representations and warranties were made at such date (except that any representations and warranties that are made only as of a specified date shall be true and correct only as of such date).
 
(c)            Performance of Covenants .  The covenants and obligations that Purchaser is required to perform or comply with under this Agreement on or before the Closing Date shall have been duly performed and complied with by Purchaser in all material respects.
 
(d)            Deliverables .  Purchaser shall have made delivery to Seller of all other instruments and documents set forth in Section 3.01(b) , and other than any instruments and documents set forth in Section 3.01(b) that customarily will be (and are) delivered at Closing.
 
Section 4.03            Frustration of Closing Conditions .  Neither Purchaser nor Seller may rely on the failure of any condition set forth in this Article IV to be satisfied if such failure was caused by such Party’s failure to act in good faith or to comply with its obligations under Section 9.01 to cause the Closing to occur.
 
ARTICLE V
 
REPRESENTATIONS AND WARRANTIES OF SELLER
 
Except as set forth in the Schedules attached hereto, Seller hereby represents and warrants to Purchaser as follows:
 
Section 5.01            Organization; Authority .  Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  Seller has the requisite corporate power and authority to own, lease and operate, as applicable, the Acquired Assets. The Seller has all of the requisite corporate power and authority to execute, deliver, perform its obligations under this Agreement and the Other Acquisition Documents to which it is, or is specified to be, a party and to consummate the transactions contemplated hereby and thereby.  All acts and other proceedings required to be taken by Seller to authorize the execution, delivery and performance of this Agreement and the Other Acquisition Documents to which it is, or is specified to be, a party and to consummate the transactions contemplated hereby and thereby have been duly and properly taken.  This Agreement has been duly executed and delivered by Seller and, assuming this Agreement has been duly authorized, executed and delivered by Purchaser, constitutes, and the Other Acquisition Documents on the Closing Date will be duly executed and delivered by Seller and upon the due authorization, execution and delivery by each other party to the Other Acquisition Documents will constitute, a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors’ rights generally and to general equitable principles.  No other proceeding on the part of the Seller is necessary to authorize this Agreement or the Other Acquisition Documents or any of the transactions contemplated hereby or thereby.
 
 
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Section 5.02            No Conflicts; Consents .
 
(a)           Except as set forth on Schedule 5.02 , the execution, delivery and performance of this Agreement by Seller does not, and the execution, delivery and performance by Seller of each Other Acquisition Document to which it is, or is specified to be, a party will not, and the consummation of the transactions contemplated hereby and thereby and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation, or give rise to any liability of Purchaser, or result in the creation of any Lien upon any of the Acquired Assets under, any provision of (i) Seller’s certificate of incorporation or by-laws , (ii) any Contract to which Seller is a party and by which any of the Acquired Assets are bound, (iii) any judgment, order, or decree, or, subject to the matters referred to in Section 5.02(b) below, any Law applicable to Seller, its properties, the Acquired Assets or any other assets of Seller, other than, in the case of clause (ii) above, any such items that would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on the ability of Seller to consummate the Acquisition.
 
(b)           No consent, approval, license, permit, order or authorization of, or registration, declaration or filing with, any Governmental or Regulatory Authority or Third Party is required to be obtained or made by or with respect to Seller in connection with the execution, delivery and performance of this Agreement, the Other Acquisition Documents or the consummation of the transactions contemplated hereby or thereby, other than such consents, approvals, licenses, permits, orders, authorizations, registrations, declarations and filings the absence of which, or the failure to make which, individually or in the aggregate, (i) would not be reasonably likely to have a material adverse effect on the ability of Seller to consummate the Acquisition or perform its obligations under this Agreement or the Other Acquisition Documents, and (ii) would not give rise to any liability of Purchaser as a result of the consummation of the Acquisition.
 
Section 5.03            Acquired Assets .
 
(a)           Except as set forth in Schedule 5.03 , the Acquired Assets and the Licensed Intellectual Property constitute all of the assets, rights or property (other than (x) any intellectual property that are licenses for commercial “off-the-shelf” or “shrink-wrap” software, and (y) administrative, finance and other infrastructure and back office information technology systems, networks and software), owned or used by Seller or its Affiliates and primarily related to the Intended Use of the Product in the Territory.
 
 
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(b)           The Seller owns, leases, licenses or has the right to use the Acquired Assets and Licensed Intellectual Property free and clear of all Liens and upon the consummation of the Acquisition, the Purchaser shall acquire good and marketable title to, and all right, title and interests of Seller in and to, the Acquired Assets and Licensed Intellectual Property, free and clear of all Liens.  The Seller has the exclusive license rights to the Licensed Intellectual Property, with the right to further convey such rights to the Purchaser. Except as set forth on Schedule 5.03 , the Acquired Assets include all of the assets necessary for the Intended Use of the Product in the Territory by the Purchaser, and there are no other assets (tangible or intangible) used by Seller or its Affiliates for the Intended Use of the Product in the Territory, other than those assets included in the Acquired Assets.
 
Section 5.04            Intellectual Property .
 
(a)           Seller owns free and clear of all Liens the Transferred Intellectual Property and the consummation of the Acquisition will not conflict with, alter or impair any such rights in any material respect.
 
(b)           As of the date hereof, no claims are pending before any court, arbitrator or other tribunal, or before any administrative law judge, hearing officer or administrative agency or, to Seller’s Knowledge, threatened in writing, against Seller or any of its Affiliates by any Third Party with respect to the ownership, validity or enforceability of any Transferred Intellectual Property or Licensed Intellectual Property.
 
(c)           Seller has not granted any options, licenses or agreements relating to the Transferred Intellectual Property or, with respect to Zuplenz in the Territory, relating to the Licensed Intellectual Property, except non-exclusive implied licenses to end-users in the ordinary course of business.  As of the date hereof, Seller is not bound by or a party to any material options, licenses or agreements of any kind for intellectual property of any Third Party relating to Zuplenz in the Territory, except for the Transferred Contracts.
 
(d)           To Seller’s Knowledge, no Third Party is infringing or violating or misappropriating any of the Transferred Intellectual Property or any Licensed Intellectual Property exclusively licensed to Seller, or has made any claim of ownership or right to any Transferred Intellectual Property or such Licensed Intellectual Property.  Seller has neither asserted nor threatened in writing any action or claim against any Third Party involving or relating to any Transferred Intellectual Property or such Licensed Intellectual Property.  Seller has not received any written request from any Third Party that Seller enter into a license with respect to any Third Party intellectual property right in relation to Zuplenz , the Acquired Assets or the Intended Use of Zuplenz in the Territory.
 
(e)           To Seller’s Knowledge, the Intended Use of each of Zuplenz in the Territory does not infringe or violate or constitute a misappropriation of any intellectual property of any Third Party.  Seller has not received any written claim or notice alleging any such infringement, violation or misappropriation.
 
 
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(f)           There is no pending or, to Seller’s Knowledge, threatened claim, interference, opposition or demand of any Third Party challenging the ownership, validity or scope of any Transferred Intellectual Property.
 
Section 5.05            Transferred Contracts .  Each Transferred Contract is valid, binding and in full force and effect and, to Seller’s Knowledge, is enforceable by Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws affecting creditors’ rights generally, general principles of equity and the discretion of courts in granting equitable remedies.  Except as set forth on Schedule 5.05 , as of the date hereof and as of the Closing Date, Seller has performed in all material respects all material obligations required to be performed by it under the Transferred Contracts and is not (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder and, to Seller’s Knowledge, as of the date hereof, no other party to any of the Transferred Contracts is (with or without the lapse of time or the giving of notice, or both) in breach or default in any material respect thereunder. Correct and complete copies of each Transferred Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Purchaser.  There are no material disputes pending or threatened under any Transferred Contract included in the Acquired Assets.
 
Section 5.06            Litigation .  As of the date hereof, there are no (a) outstanding judgments, orders, injunctions or decrees of any Governmental or Regulatory Authority or arbitration tribunal against Seller or any of its Subsidiaries, (b) Legal Proceedings pending or, to the Seller’s Knowledge, threatened against Seller, or (c) investigations by any Governmental or Regulatory Authority which are pending or, to the Knowledge of Seller, threatened against Seller or any of its Subsidiaries, which, in the case of each of clauses (a), (b) and (c), relating to the Products or the Intended Use of Zuplenz in the Territory or the Acquired Assets and have had or would be reasonably likely to be material and adverse to the Acquired Assets, or the ability of Seller to consummate the Acquisition and the other transactions contemplated by this Agreement and the Other Acquisition Documents.
 
Section 5.07            Brokers or Finders .  Except for Mizuho Securities USA, Inc., no agent, broker, investment banker, financial advisor or other firm or Person is or will be entitled to any broker’s, financial advisor’s, finder’s fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement or the Other Acquisition Documents based upon arrangement made by or on behalf of Seller or any of its Affiliates.  For the avoidance of doubt, all fees due to Mizuho Securities USA, Inc. in connection with any of the transactions contemplated by this Agreement or the Other Acquisition Documents shall be payable by Seller.
 
Section 5.08            Tax Matters .
 
(a)           All Income Tax Returns and other material Tax Returns required to be filed by or on behalf of Seller have been timely filed with the appropriate taxing authority in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns are true, complete and correct in all material respects; and all material amounts of Taxes payable by or on behalf of Seller have been paid.
 
 
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(b)           Seller has not received written notice of any Tax deficiency outstanding, proposed or assessed nor has Seller executed or waived any statute of limitations in respect of Taxes nor agreed to any extension of time with respect to a Tax assessment deficiency.  There is no ongoing or pending audit, action, suit, or administrative or judicial proceeding now pending or threated in writing against or with respect to Seller by any Tax authority.
 
(c)           There is no material dispute or claim concerning any Tax liability of Seller (A) claimed or raised by any authority in writing or (B) as to which the directors and officers of Seller have knowledge based upon personal contact with any agent of such authority.
 
(d)           There are no Liens for Taxes other than Permitted Liens upon any of the Acquired Assets.
 
(e)           Seller is not a party to any Income Tax allocation or sharing agreement.
 
(f)           Seller has not been a party to any “reportable transaction,” as defined in Code §6707A(c)(1) and Treasury Regulation §1.6011-4(b).
 
Section 5.09            Product Liability .  There is no currently pending nor, to the Knowledge of the Seller, any threatened action, suit, proceeding, hearing, investigation, charge, complaint, claim, recall or demand giving rise to any liability for product liability, warranty, material back-charge, material additional work, field repair or other claims by any Third Party (whether based on contract or tort and whether relating to personal injury, including death, property damage or economic loss) against the Seller or any of its Subsidiaries with respect to the Product in the Territory.  All services rendered in connection with the Product and the sale of the Product by the Seller or its Subsidiaries have been in conformity with all applicable contractual commitments and all express and implied warranties, and neither the Seller not its Subsidiaries has any liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand giving rise to any liability) for damages in connection therewith.  The Product is not subject to any guaranty, warranty, or other indemnity beyond the Seller’s standard terms and conditions of sale, a true, correct and complete copy of which has been delivered to Purchaser.  To Seller’s Knowledge, no event or circumstances have occurred that relate to the Product that would reasonably form the basis for a product liability claim.
 
 
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Section 5.10            Inventory .  The Inventory consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items in commercially reasonable amounts. All trade inventories of the Product comprising the Inventory have the expiration dates as set forth on Exhibit 2.01(a)(v) .  To Seller’s Knowledge, all of the Inventory is, as of the date hereof, free of defects (including defects in labeling, packaging and storage) and systematic or chronic problems and complies in all material respects with all applicable specifications and all applicable Law, including all regulatory requirements and environmental Laws, including cGMP, and may be introduced into interstate commerce in the United States in accordance with applicable Law .  All Inventory that has been returned, has expired or has been deemed unusable or not fit for sale, has been or will be destroyed in accordance with the policies of the Seller and applicable Law. For purposes of this Agreement, the term “ cGMP ” means the then-current good manufacturing practices required by the FDA, as defined in21 C.F.R. Parts 210 and 211, for the manufacture and testing of pharmaceutical materials.
 
Section 5.11            Compliance with Law .  Seller is in compliance in all material respects with, and is not in material violation or non-compliance with, nor has Seller or any of its Subsidiaries received any written notice of any violation or non-compliance with, any applicable Law with respect to the Procut or the ownership or operation of the Acquired Assets.
 
Section 5.12            Permits .   Schedule 5.12 sets forth a complete and accurate list of all Permits with or from any Governmental or Regulatory Authority necessary for Seller or any of its Subsidiaries to own and operate the Acquired Assets .  Each of the Permits is in full force and effect, Seller is in compliance in all material respects with, and is not in material violation of any of, the terms, conditions and requirements of the Permits. Seller has not received any written, or to the Seller’s Knowledge, oral, notice with respect to any failure by the Seller to timely possess any Permit with or from any Governmental or Regulatory Authority.
 
Section 5.13            Regulatory Matters .
 
(a)           The Product has been researched, developed, tested, manufactured, supplied, promoted, distributed, marketed, commercialized, stored and sold, as applicable, by Seller and, to Seller’s Knowledge, by each other Person on behalf of Seller, in compliance in all material respects with (i) all applicable Laws and (ii) all Permits.  The Product is not adulterated or misbranded within the meaning of the FDA Act or any similar governmental act or Law of any jurisdiction.
 
(b)           Seller has made available to Purchaser complete and correct copies of (i) each NDA submitted by or on behalf of Seller to the FDA with respect to the Product; (ii) all other material document, correspondence, filing or other communication submitted to a Governmental or Regulatory Authority or the Department of Justice by or on behalf of Seller or received from a Governmental or Regulatory Authority or the Department of Justice by or on behalf of Seller, in each case, with respect to the Product or the Acquired Assets; (iii) all material scientific, clinical and safety data of Seller with respect to the Product; and (iv) all audit reports performed by Seller or on its behalf to assess Seller’s compliance with applicable Health Laws.
 
 
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(c)           Seller has not received, nor with respect to the Product is there any pending or outstanding:  (i) Form 483 observations, FDA warning letters or post-sale warnings or other regulatory warning letters or sanctions; (ii) inspectional observations or establishment inspection reports reciting penalties for corrective or remedial action or requiring corrective action plans; (iii) field notifications or alerts; (iv) import alerts, holds or detentions; or (v) other documents that, in the case of each of the preceding clauses (i) through (iv), have been received by Seller from the FDA or any other Governmental or Regulatory Authority relating to the Product, or to Seller’s Knowledge, any facility in which the Product is manufactured, packaged or stored, and that assert ongoing material lack of compliance with any such Laws by Seller.
 
(d)           Seller is not in violation of, and, to Seller’s Knowledge, Seller is not the subject of, any pending investigation by a Governmental or Regulatory Authority regarding activities prohibited under, the U.S. Anti-Kickback Act (42 U.S.C. § 1320a-7b(b), et seq.), the U.S. Stark Law (42 U.S.C. § 1395nn), the U.S. False Claims Act (31 U.S.C. § 3729, et seq.), the Trade Agreements Act (19 U.S.C. §§2501-2581) or any other Laws governing participation in United States healthcare programs, or any comparable state or foreign Laws.  There are no lawsuits, actions or proceedings pending or, to Seller’s Knowledge, threatened in writing against Seller that would reasonably be expected to result in the exclusion of Seller from any third party payment program in which they participate.
 
(e)           Seller has not received any written notice from the FDA or any other Governmental or Regulatory Authority that it has commenced, and to Seller’s Knowledge neither the FDA nor any other Governmental or Regulatory Authority has threatened to commence, any action to withdraw its approval or request the recall of the Product, or commenced, or to Seller’s Knowledge threatened to commence, any action to enjoin production at any facility at which the Product is manufactured.
 
(f)           Seller has not, and to Seller’s Knowledge, no director, officer, employee or agent of Seller has, committed an act, made a statement, or failed to make a statement, that would reasonably be expected to provide a basis for any Governmental or Regulatory Authority to invoke the FDA policy respecting “Fraud, Untrue Statements of Material Facts, Bribery and Illegal Gratuities,” set forth in 56 Fed. Reg. 46191 (September 10, 1991) or any similar policy, in each case as related to the Product or the Acquired Assets.  Seller, and, to Seller’s Knowledge, no director, officer, employee or agent of Seller, has been convicted of any crime or engaged in any conduct for which debarment or similar punishment is mandated or permitted by 21 U.S.C. § 335a(a) or any similar Laws or authorized by 21 U.S.C. § 335a(b) or any similar Laws.  Seller has not, and, to Seller’s Knowledge, no director, officer, employee or agent of Seller has been, convicted of any crime or engaged in any conduct for which such Person could be excluded from participating in the Federal health care programs under Section 1128 of the Social Security Act of 1935, as amended, or any similar Laws.
 
(g)           The annual Prescription Drug User Fees for the Product due for all time periods prior to the Closing have been timely paid by Seller in full when due.
 
 
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Section 5.14            Solvency .  Seller is not currently Insolvent and Seller shall not be rendered Insolvent by any of the transactions contemplated by this Agreement or the Other Ancillary Documents. Immediately after given effect to the consummation of the transaction contemplated by this Agreement: (a) Seller shall be able to pay its Liabilities as they become due in Seller’s ordinary course of business; (b) Seller shall not have unreasonable small capital with which to conduct its present or proposed business; and (c) Seller shall have assets (calculated at fair market value) that exceed its Liabilities.
 
Section 5.15            Financial Statements .  Seller has made available to Purchaser all material financial information related to the Product and the Acquired Assets reasonably requested by Purchaser.  Such financial information was derived from the books and records of Seller and was prepared by Seller in good faith and fairly presents, in all material respects, in accordance with Seller’s accounting practices and procedures, financial information with respect to the Product as of the dates and for the periods shown.
 
Section 5.16            Material Information .  To Seller’s Knowledge, Seller has not omitted to furnish Purchaser with any information in its control or possession, or of which it is aware, concerning the Product or the Acquired Assets which would, in Seller’s reasonable judgment, reasonably be material to Purchaser’s decision to enter into this Agreement.
 
ARTICLE VI
 
COVENANTS OF SELLER
 
Seller hereby covenants and agrees as follows:
 
Section 6.01            Access .  From the date hereof until the Closing, Seller shall give Purchaser and its representatives, employees, counsel and accountants reasonable access, during normal business hours and upon reasonable advance notice, to the Acquired Assets for purposes of conducting due diligence or otherwise in connection with the transactions contemplated hereby; provided, however, that such access (i) does not unreasonably disrupt the normal operations of Seller or a Third Party, (ii) would not reasonably be expected to violate any attorney-client privilege of Seller or violate any applicable Law, and (iii) would not reasonably be expected to breach any duty of confidentiality owed to any Person whether the duty arises contractually, statutorily or otherwise.
 
Section 6.02            Other Covenants .  From the date hereof until the Closing, the Seller shall conduct its business with respect to the Product and the Acquired Assets in substantially the same manner as presently conducted and shall not, prior to Closing, solicit or fill orders for the Product in a manner inconsistent with past practice, and, except as otherwise contemplated by the terms of this Agreement or any Other Acquisition Document, Seller will not without the prior written consent of Purchaser (such consent not to be unreasonably withheld):
 
(a)           except pursuant to existing Contracts, sell, assign, lease, license, transfer, hypothecate or otherwise dispose of, or agree to sell, assign, lease, license, transfer, hypothecate or otherwise dispose of, any of the Acquired Assets, or, with respect to Zuplenz in the Territory, the Licensed Intellectual Property, or create Assumed Liabilities;
 
 
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(b)           except with respect to the MonoSol License Agreement in accordance with Schedule 4.01(f) , amend, terminate, renew, extend or waive in writing any right under any Transferred Contract if such amendment, termination, renewal, extension or waiver would adversely affect the rights to be transferred to Purchaser at the Closing; or
 
(c)           authorize, commit, or agree to take any of the foregoing actions.
 
Section 6.03            Payment of Indebtedness .  On or prior to the Closing, Seller shall pay or cause to be paid, in full, any Liabilities of Seller for monies due but not yet payable as of the Closing Date under the Transferred Contracts.
 
Section 6.04            Exclusivity .  Seller agrees that, until the earlier of the Closing or the termination of this Agreement, it will not, and will direct its agents and representatives not to, solicit, entertain, negotiate or consummate any inquiries or proposals with respect to the sale or disposition of the Product, the Acquired Assets or any material rights thereto, other than the sale of the finished Product in the ordinary course of business.
 
Section 6.05            Inventory .  At the time of the Closing, all Inventory acquired by the Purchaser shall have a shelf life of no less than 24 months from the date of Closing.  If any Inventory has a shelf life of less than 24 months the Seller shall, at its option, provide it to the Purchaser at no cost or provide Purchaser a replacement at no cost.
 
Section 6.06            SEC Reports .  For a period of nine months following the Closing Date, promptly following Purchaser’s written request within such period, Seller and its Subsidiaries will cooperate with Purchaser in connection with Purchaser’s preparation of audited and unaudited financial statements relating to the Product and any “business” (within the meaning of Item 3-05 and related Items of Regulation S-X under promulgated by the U.S. Securities and Exchange Commission (the “ SEC ”)) attributable to the Product as of and for any of the years ended in the three-year period ended December 31, 2014 and any calendar quarter ended prior to the Closing Date as may be necessary to enable Purchaser to comply with applicable financial reporting and other requirements with respect to reports and filings with the SEC.  If requested by Purchaser, Seller shall engage Seller’s or its Subsidiaries’ independent auditors, at Purchaser’s sole cost and expense, to audit such financial statements for the periods required by Regulation S-X of the SEC and to render an opinion on such financial statements. Seller will provide, if required by Purchaser’s independent auditors, customary executed representation letters required to enable independent auditors to render an opinion on audited financial statements.  Seller shall request, and take reasonable steps to encourage, its and its Subsidiaries’ auditors to cooperate with Purchaser and its auditors.  For the avoidance of doubt, (i) all reasonable and documented out-of-pocket costs incurred by Seller and its Subsidiaries in performing its obligations under this Section 6.06 shall be the sole responsibility of Purchaser, and (ii) Seller and its Subsidiaries shall have no obligation to provide, or cause any Third Party to provide, any such information of any Third Party in performing its obligations under this Section 6.06 .
 
 
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Section 6.07            Competing Product .  Seller agrees that for the period commencing on the Closing Date and ending on the seventh anniversary of the Closing Date, neither Seller nor its Subsidiaries will directly or indirectly sell, market, develop, distribute, manufacture or otherwise promote, including pursuant to a license, any Competing Product in the Territory, or actively and knowingly assist any Third Party to do any of the foregoing.
 
ARTICLE VII
 
REPRESENTATIONS AND WARRANTIES OF PURCHASER
 
Purchaser hereby represents and warrants to Seller as follows:
 
Section 7.01           Authority .  Purchaser is a public limited company duly organized, validly existing and in good standing under the laws of the England and Wales.  Purchaser has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the Other Acquisition Documents to which it is, or is specified to be, a party and to consummate the transactions contemplated hereby and thereby.  All corporate acts and other proceedings required to be taken by Purchaser to authorize the execution, delivery and performance of this Agreement and the Other Acquisition Documents to which it is, or is specified to be, a party and to consummate the transactions contemplated hereby and thereby have been duly and properly taken.  This Agreement has been duly executed and delivered by Purchaser and, assuming this Agreement has been duly authorized, executed and delivered by Seller, constitutes, and the Other Acquisition Documents on the Closing Date will be duly executed by Purchaser, and upon the due authorization, execution and delivery by each other party to the Other Acquisition Documents, will constitute a legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors’ rights generally and to general equitable principles.  No other proceeding on the part of the Purchaser is necessary to authorize this Agreement, the Other Acquisition Documents or the transactions contemplated hereby and thereby.
 
Section 7.02            No Conflicts; Consents .
 
(a)           The execution, delivery and performance of this Agreement by Purchaser does not, and the execution, delivery and performance by Purchaser of each Other Acquisition Document to which it is, or is specified to be, a party will not, and the consummation of the transactions contemplated hereby and thereby and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation, or result in the creation of any Lien upon any of the properties or assets of Purchaser under, any provision of (i) its articles of association, (ii) any Contract to which Purchaser is a party or by which any of its properties or assets are bound, or (iii) any judgment, order, or decree, or, subject to the matters referred to in Section 7.02(b) below, any Law applicable to Purchaser, its properties or assets, other than, in the case of clause (i) and (ii) above, any such items that would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on the ability of Purchaser to consummate the Acquisition.
 
 
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(b)           No consent, approval, license, permit, order or authorization of, or registration, declaration or filing with, any Governmental or Regulatory Authority or Third Party is required to be obtained or made by or with respect to Purchaser in connection with the execution, delivery and performance of this Agreement, the Other Acquisition Documents or the consummation of the transactions contemplated hereby or thereby, other than such consents, approvals, licenses, permits, orders, authorizations, registrations, declarations and filings the absence of which, or the failure to make which, individually or in the aggregate, (i) would not be reasonably likely to have a material adverse effect on the ability of Purchaser to consummate the Acquisition or perform its obligations under this Agreement or the Other Acquisition Documents, and (ii) would not give rise to any liability of Seller or any of its Affiliates as a result of the consummation of the Acquisition.
 
Section 7.03            Litigation .  As of the date hereof, there are no (a) outstanding judgments, orders, injunctions or decrees of any Governmental or Regulatory Authority or arbitration tribunal against Purchaser, (b) except as set forth on Schedule 7.03(b ) of the Purchaser’s disclosure schedules, lawsuits, actions or proceedings pending or, to the knowledge of Purchaser, threatened against Purchaser, or (c) investigations by any Governmental or Regulatory Authority which are pending or, to the knowledge of Purchaser, threatened against Purchaser, which, in the case of each of clauses (a), (b) and (c), have had or would be reasonably likely to have a material adverse effect on the ability of Purchaser to consummate the Acquisition and the other transaction contemplated by this Agreement and the Other Acquisition Documents.
 
Section 7.04            Availability of Funds .  Purchaser has cash available or has existing committed borrowing facilities, which together are sufficient to enable it to consummate the Acquisition.
 
Section 7.05            Brokers or Finders .  Except for The Fulford Group, no agent, broker, investment banker, financial advisor or other firm or Person is or will be entitled to any broker’s, financial advisor’s or finder’s fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement or the Other Acquisition Documents based upon arrangement made by or on behalf of Purchaser or any of its Affiliates.  For the avoidance of doubt, all fees due to The Fulford Group in connection with any of the transactions contemplated by this Agreement or the Other Acquisition Documents shall be payable by Purchaser.
 
 
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ARTICLE VIII
 
COVENANTS OF PURCHASER
 
Purchaser hereby covenants and agrees as follows:
 
Section 8.01           Advise Seller .  Purchaser shall promptly advise Seller in writing of any change or event occurring between the date hereof and the Closing Date which Purchaser believes (i) would be reasonably likely to result in the failure of any of the conditions to the Closing set forth in Article IV to be satisfied as of the Closing Date, or (ii) would be reasonably likely, individually or in the aggregate, to have a material adverse effect on the ability of Purchaser to consummate the Acquisition or the other transactions contemplated by this Agreement and the Other Acquisition Documents.
 
Section 8.02            Records .
 
(a)           Purchaser shall, from the Closing Date until the date that is five years following the Closing Date, keep full and accurate books of all accounts and other records included within the Acquired Assets and make such books and records available for inspection and copying by Seller or its agents, at its sole expense, upon reasonable request and upon reasonable notice.
 
(b)           Purchaser shall, from the Closing Date until the third anniversary of the end of the Milestone Period, as applicable, keep accurate books and records of all accounts and other records in sufficient detail so that any Net Sales Statement can be properly and fully ascertained.  Purchaser shall, at the request of Seller, permit a nationally recognized independent certified public accountant selected by Seller that is not at the time of selection serving as the independent registered public accounting firm of Seller, and that is reasonably acceptable to Purchaser (the “ Independent Auditor ”), to have access during ordinary business hours and upon no less than 30 days’ prior written notice, but on no more than one occasion per calendar year, to such books and records as may be reasonably necessary to determine the accuracy of any Net Sales Statement.  The Independent Auditor shall be bound by a confidentiality agreement, in a form reasonably acceptable to Purchaser, to keep all information acquired from Purchaser confidential, and shall be permitted to disclose to Seller only whether any Net Sales Statement was accurate and the amount, if any, owed to or by Seller pursuant to Section 3.03(a) . The Independent Auditor shall send a copy of its written reports to Purchaser at the same time it is sent to Seller.  Seller shall be responsible for the fees and expenses of the Independent Auditor, provided, however, that Purchaser shall reimburse Seller in full for all such documented costs and expenses of the Independent Auditor if the Independent Auditor determines that the amounts paid pursuant to Section 3.03(a) are less than 98% of the amount actually owed pursuant to the applicable Net Sales Statement.
 
Section 8.03            Disclaimer .        PURCHASER ACKNOWLEDGES THAT, EXCEPT AS SET FORTH IN ARTICLE V, SELLER MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, AND, EXCEPT AS SET FORTH IN ARTICLE X, ASSUMES NO RESPONSIBILITY AFTER CLOSING WHATSOEVER IN RESPECT OF THE ACQUIRED ASSETS.
 
 
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ARTICLE IX
 
MUTUAL COVENANTS
 
Section 9.01            Efforts .
 
Subject to the terms and conditions of this Agreement, following the date hereof, each Party shall use its commercially reasonable efforts to cause the Closing to occur as soon as practicable thereafter.  Following the date hereof, each of Seller and Purchaser shall not, and shall not permit any of their respective Affiliates to, take any action that would, or that would reasonably be expected to, result in any of the conditions set forth in Article IV not being satisfied.  This Section 9.01 shall not, and shall not be deemed to, restrict or prohibit Seller or Purchaser in any way whatsoever from exercising any and all rights and remedies available to it under this Agreement or any of the Other Acquisition Documents.  Each of Seller and Purchaser shall cooperate with the other Party and its employees, legal counsel, accountants and other representatives and advisers in connection with the steps required to be taken as part of their respective obligations under this Agreement; and each of them shall, at any time and from time to time after the Closing, upon the reasonable request of the other, do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, all such further acts, deeds, assignments, transfers, conveyances, receipts, acknowledgments, acceptances and assurances as may be reasonably required (without incurring unreimbursed expense) to satisfy and perform the obligations of such party hereunder, and to allow Purchaser to accomplish the Intended Use of Zuplenz in the Territory after the Closing.
 
Section 9.02            Bulk Transfer Laws .  Purchaser acknowledges that Seller and its Affiliates will not comply with the provisions of any so-called “bulk transfer law” of any jurisdiction in connection with the sale of the Acquired Assets to Purchaser.
 
Section 9.03             Transfer Taxes .  Seller, on the one hand, and Purchaser, on the other hand, shall each be responsible for 50% of all transfer, documentary, sales, use, stamp, registration and other such Taxes, applicable to the Acquisition (such Taxes, together with any interest, penalties and additions thereto, collectively, “ Transfer Taxes ”).  Each Party shall file all necessary Tax Returns and other documentation required to be filed by it under applicable Law with respect to all Transfer Taxes, and, if required by applicable Law, the other Party will, and will cause its Affiliates to, join in the execution of any such Tax Returns and other documentation.  Purchaser and Seller shall cooperate in providing each other with any appropriate resale exemption certifications and other similar documentation required to obtain any exemption from (or reduction in) Transfer Taxes, and shall cooperate in taking any commercially reasonable steps permitted by applicable Law to minimize the Parties’ liability for Transfer Taxes.
 
 
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
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Section 9.04            Purchase Price Allocation .
 
(a)           The Parties agree that the Purchase Price and Assumed Liabilities shall be allocated among the Acquired Assets sold by Seller and each of its Affiliates and purchased by Purchaser in a manner consistent with Section 1060 of the Code and the Treasury regulations promulgated thereunder (and corresponding provisions of applicable foreign Law) (for the avoidance of doubt, an allocation different from an allocation under Section 1060 of the Code and the Treasury regulations promulgated thereunder may be required by applicable Tax Law or foreign Law to be taken for local country Tax or accounting purposes) and in accordance with an allocation schedule set forth by Purchaser and delivered to Seller within ninety (90) days after Closing (the “ Allocation ”).  Seller shall have the right to review and raise any objections in writing to the Allocation during the thirty (30) day period after its receipt thereof. In the event of a disagreement that cannot be resolved by the parties discussing in good faith during such thirty (30) day period, a nationally recognized independent accounting firm mutually acceptable to Purchaser and Seller shall settle such dispute with the costs of such firm being borne equally by Seller and Purchaser.
 
(b)           Purchaser and Seller agree to (i) be bound by the Allocation for all U.S. federal income tax purposes, (ii) act in accordance with the Allocation in the preparation of all U.S. Tax Returns (including filing Form 8594), and (iii) take no position inconsistent with the Allocation for all U.S. Tax purposes, unless otherwise required by Law. In the event that any Taxing Authority disputes the Allocation, Seller or Purchaser, as the case may be, shall promptly notify the other Party of the nature of such dispute and consult with the other Party and keep such other Party reasonably apprised of material developments concerning the resolution of such dispute.
 
Section 9.05            Recordation of Transferred Intellectual Property .  Purchaser, at its sole cost and expense shall be responsible for all applicable recordations of the assignment of the Transferred Intellectual Property.  Seller agrees to execute and deliver to Purchaser, within a reasonable time after the Closing, such assignments and other documents, certificates and instruments reasonably requested by Purchaser for Purchaser’s filing with the applicable registries and other recording authorities to record the transfer of the Transferred Intellectual Property in accordance with applicable Law.
 
Section 9.06            Confidentiality and Confidential Information .
 
(a)           The terms of the Confidentiality Agreement are hereby incorporated in this Agreement as though fully set forth herein and shall apply to any information provided by Seller or Purchaser pursuant to this Agreement. As used in this Section 9.06 , the term “Confidential Information” shall have the meaning assigned to that term in the Confidentiality Agreement.  Upon the Closing, the Confidentiality Agreement shall expire and be of no further force and effect with respect to all Confidential Information related to the Product, the Acquired Assets or the Assumed Liabilities; provided, however, such expiration shall in no such way prejudice or adversely affect Seller’s or Purchaser’s ability to seek damages, or any other remedy available to Seller or Purchaser, as appropriate, with respect to a violation by such Party (or its Affiliates or representatives) of the Confidentiality Agreement prior to or after the Closing Date. Upon and after the Closing Date, the Confidentiality Agreement shall remain in full force and effect pursuant to its terms with respect to all other Confidential Information that does not relate to the Product, the Acquired Assets or the Assumed Liabilities.
 
 
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(b)           From and after the Closing Date, all Confidential Information exclusively concerning the Product, the Acquired Assets and the Assumed Liabilities (the “ Purchaser Proprietary Information ”) shall be used by Seller and its Affiliates solely as required to perform its obligations, exercise or enforce its rights under this Agreement (or any Other Acquisition Document), to comply with applicable Law, or as otherwise required by Seller in connection with disputes or matters concerning any Third Party related solely to the period before the Closing Date (each a “ Permitted Purpose ”), and for no other purpose except as authorized by Purchaser.  Seller shall not disclose, or permit the disclosure of any of the Purchaser Proprietary Information to any Person except those Persons to whom such disclosure is necessary for a Permitted Purpose.  Seller shall treat, and will cause its Affiliates and the directors, officers, employees, agents, representatives and advisors of Seller or any of their Affiliates to treat, the Purchaser Proprietary Information as confidential, using the same degree of care as Seller normally employs to safeguard its own confidential information from unauthorized use or disclosure, but in no event less than a reasonable degree of care.
 
(c)           All Confidential Information obtained by Purchaser (or its Affiliates or representatives) from Seller (or its Affiliates or representatives) other than the Purchaser Proprietary Information (the “ Seller Proprietary Information ”) shall be used by Purchaser solely as required to perform its obligations, exercise or enforce its rights under this Agreement (or any Other Agreement), or comply with applicable Law, and for no other purpose.  Purchaser shall not disclose, or permit the disclosure of, any of the Seller Proprietary Information to any Person except those Persons to whom such disclosure is necessary to permit Purchasers to perform its obligations, exercise or enforce its rights under this Agreement (or any Other Acquisition Document), or comply with applicable Law.  Purchaser shall treat, and will cause its Affiliates and the directors, officers, employees, agents, representatives and advisors of Purchaser or any of their Affiliates to treat, the Seller Proprietary Information as confidential, using the same degree of care as Purchaser normally employs to safeguard its own confidential information from unauthorized use or disclosure, but in no event less than a reasonable degree of care.
 
 
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(d)           Either Party may be entitled to disclose the other Party’s Confidential Information (including Seller Proprietary Information or Purchaser Proprietary Information, as applicable) that is requested or required to be disclosed to be disclosed (i) to or by any Governmental or Regulatory Authorities; (ii) to comply with applicable Laws (including, without limitation, to comply with SEC or any other stock exchange disclosure requirements), (iii) to comply with judicial process or an order of any Governmental or Regulatory Authority of competent jurisdiction, or (iv) to defend or prosecute litigation; provided, however, that in each case the Party required or requested to disclose such Confidential Information shall, to the extent legally permissible, use reasonable efforts to notify the other Party in a timely manner  so that the such Party may seek a protective order or other appropriate remedy of such Confidential Information, to the extent available, or, in such Party’s sole discretion, waive compliance with the confidentiality portion of this Agreement. Each Party will cooperate in all reasonable respects, in connection with any reasonable actions to be taken for the foregoing purpose; provided further that the disclosing Party shall only disclose the portion of Confidential Information which such Party is advised by a reasoned opinion of counsel is legally required, and such Party exercise reasonable efforts to obtain reliable assurance that confidential treatment will be accorded such Confidential Information.
 
(e)           This obligations set forth in this Section 9.06 shall survive the Closing for five years (the “ Confidentiality Period ”).  If this Agreement is terminated, the terms of the Confidentiality Agreement shall apply. Upon the termination of the Confidentiality Period, a receiving Party shall return to the disclosing Party or destroy all Confidential Information (other than the Seller Proprietary Information or Purchaser Proprietary Information, as applicable) provided to it by the disclosing Party, including all copies, notes and extracts thereof or other written records containing such Confidential Information, except for (x) one (1) copy that it may keep in counsel’s secure files for the sole purpose of verifying its continuing confidentiality obligations hereunder, and (y) archival copies residing on back-up tapes made by such party in the ordinary course of business; provided , that for the avoidance of doubt, Purchaser and Seller shall not be obligated hereby to return or destroy any Confidential Information that constitutes Purchaser Proprietary Information or Seller Proprietary Information, respectively.
 
Section 9.07            NDC, UPC, Excluded Trademarks and Seller Names .
 
(a)           Until the earlier of (i) 12 months following the Closing Date or (ii) Purchaser’s establishment of the Purchaser NDC Numbers as set forth in Section 9.07(b) , Seller grants a fully paid, royalty free, non-exclusive right and license to Purchaser to use the names and logos of Seller (the “ Seller Names ”), the Universal Product Code (“ UPC ”) for the Product, Seller’s National Drug Code for the Product (the “ NDC ”), and the Excluded Trademarks to the extent necessary to allow Purchaser to market, distribute and sell the Products in the Territory.  Seller shall not discontinue the NDC associated with the Product as of the date hereof, provided that, as soon as practicable following the Closing Date, but in no event more than 12 months thereafter, Purchaser will establish a new NDC number (the “ Purchaser NDC Number ”) and notify Seller thereof.  Notwithstanding the foregoing, Purchaser shall be permitted to continue to sell the Product in its then existing inventory with the former NDC Number until exhausted, provided further that Purchaser shall sell all inventory bearing Seller’s NDC Number prior to selling any inventory bearing Purchaser’s NDC Number.
 
 
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(b)           In no event shall Purchaser use any Seller Names, UPC, NDC or Excluded Trademarks in any manner or for any purpose different from the use of such Seller Names, UPC, NDC and Excluded Trademarks by Seller and its Affiliates immediately prior to the Closing Date to package, market, distribute and sell the Product in the Territory without the prior written consent of Seller, and at all times shall comply in all material respects with Laws applicable thereto.  Without limiting the foregoing, Purchaser shall not: (i) take any action that may interfere with any of Seller’s rights in the Seller Names, UPC, NDC and Excluded Trademarks; (ii) register or apply for registrations, anywhere in the world, for the Seller Names or Excluded Trademarks or any other similar trademark; or (iii) knowingly engage in any action which has the specific purpose or intent of disparaging the Seller Names or the Excluded Trademarks.
 
(c)           Notwithstanding the foregoing, the Parties acknowledge that this Agreement does not, and shall not, convey, transfer or assign any right, title or interest in any trademark, name or logo of any Third Party or to Purchaser in any Excluded Trademark, Seller Names, or any other intellectual property of Seller except as specifically provided for herein.
 
Section 9.08            Channel Liabilities .
 
(a)            Returns.   For the period from the Closing through twelve months thereafter, Seller shall bear the cost of returns of any Product which Seller previously sold; provided, however, that such returns will be subject to the requirement that the Product being returned shall have been returned in compliance with Seller’s standard Healthcare Distribution Management Association return policy guidelines or have been accepted by Seller during such twelve month period.  From and after such twelve month period, Purchaser shall be responsible for all returns of the Product; provided, however, that Purchaser shall not be responsible for any downstream returns from end user customers or returns from wholesalers from Inventory existing as of the Closing that was sold by the Seller prior to the Closing Date.  For the avoidance of doubt, Purchaser shall bear the cost of returns of all Product sold by or on behalf of Purchaser.  Where a portion of a production lot of the Product is sold by Seller prior to the Closing and the remaining portion of such production lot of the Product is sold by Purchaser following the Closing, the liability for the return of any unit of Product of such production lot within the twelve month period referenced above shall be allocated to Seller and Purchaser based on actual sales by either the buyer or the seller of the identified lots associated with such returns. All returns of Product following the Closing will be processed by Purchaser, through a Purchaser-identified third party logistics provider. During the twelve month period following the Closing Seller shall bear the cost of any returns for which it is responsible for and will reimburse Purchaser for such costs associated with these returns.
 
(b)            Medicaid Rebates .
 
 
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(i)           Seller shall bear the cost of a portion of Medicaid Rebates bearing the Seller’s NDC billed by applicable Governmental or Regulatory Authorities with respect to the calendar quarter in which the Closing occurs, such portion to equal the product of the aggregate amount of Medicaid Rebates billed by applicable Governmental or Regulatory Authorities with respect to Product dispensed in such calendar quarter multiplied by a fraction, (i) the numerator of which is the total number of days from the first day of such calendar quarter through the Closing, plus thirty (30) and (ii) the denominator of which is the total number of days from the first day of such calendar quarter through the last day of such calendar quarter; provided, however, that Purchaser  shall bear the additional costs of any Medicaid Rebates payable by Seller with respect to such calendar quarter, to the extent the costs payable as provided above exceed Seller’s historical Medicaid Rebates as a result of price increases or the setting of any new “best price” for the Product established by the Purchaser with respect to such calendar quarter.  The Purchaser shall bear the cost of the balance of Medicaid Rebates billed by Governmental or Regulatory Authorities with respect to such calendar quarter in which the Closing occurs, and the cost of Medicaid Rebates billed by applicable Governmental or Regulatory Authorities with respect to subsequent time periods.  For the avoidance of doubt, Seller shall be entitled to any and all federal and state Medicaid refunds, credits and other adjustments relating to the sale of the Product dispensed on or prior to the Closing and Purchaser shall be entitled to any and all federal and state Medicaid refunds, credits and other adjustments relating to the sale of the Product dispensed after the Closing.
 
(ii)           Notwithstanding any other provision of this Agreement, following the Closing, Seller shall be responsible for the administration of the Medicaid Rebate process for any products which bear the NDC associated with a Product as of the date hereof and Purchaser shall be responsible for the administration of such process for any products which bear a Purchaser NDC Number.  Seller, on the one hand, and the Purchaser, on the other hand, shall each furnish the other with any information necessary for each party’s performance of its administrative responsibilities pursuant to this Section 9.08(b) in the form reasonably requested by the other party, including, without limitation, applicable pricing information.  For so long as Seller is responsible for the administration of the Medicaid Rebate process for the Product, the Purchaser shall provide Seller with the necessary information within five days of the close of each calendar quarter in the form reasonably requested by Seller.  Any fines associated with incorrect or late information provided by Seller or the Purchaser to the other party under this Section 9.08(b) shall be reimbursed by Seller or the Purchaser, as the case may be, to the other party.
 
(c)            Payment Claims .  Seller shall bear the liability for any Payment Claims arising from sales of Product by customers any time prior and up to sixty days following the Closing.  The Purchaser shall bear the liability for any Payment Claims arising from sales of Product by customers any time after 60 days following the Closing.  However, each party shall be responsible for administration and payment of any Payment Claims it receives subject to the reconciliation and reimbursement procedure set forth below.  Seller, on the one hand, and Purchaser, on the other hand, shall each furnish the other with any information necessary for each party’s performance of its administrative responsibilities pursuant to this Section 9.08(c) in the form reasonably requested by the other party, including, without limitation, applicable pricing information.  Within 90 days following the Closing, each of Seller and the Purchaser shall send the other an accounting of all payments it has made on Payment Claims which are the obligation of the other party.  Each party shall, within 30 days of receiving such accounting, reimburse the other party for such payments.
 
 
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Section 9.09            Adverse Experience Reports .  Within three Business Days after the Closing, Seller shall provide Purchaser with copies of all adverse experiences in its or its Affiliates possession or control regarding the Product, since the date of Seller’s first commercial sale of any Product in the United States.  After the Closing, Seller shall submit to Purchaser all adverse drug experience information brought to the attention of Seller or its Affiliates in respect of the Product, as well as any material events and matters concerning or affecting the safety of the Product.  Additionally, after the Closing, Seller shall assist Purchaser with the provision of data relating to adverse experiences for the Product, for Purchaser’s preparation of its first Periodic Adverse Drug Experience Report after the Closing.  After the Closing, Purchaser shall have all responsibility for investigating and reporting adverse experiences for the Products, and addressing any FDA or other Governmental or Regulatory Authority inquiries relating to the safety of the Product. Purchaser shall reimburse Seller for any and all out-of-pocket expenses incurred by Seller in connection with its assistance of Purchaser as provided in this Section 9.09 .
 
Section 9.10            Response to Medical Inquiries and Products Complaints .  After the Closing, the Purchaser shall assume all responsibility for responding to any medical inquiries or complaints about the Product.  For a period of three months from the Closing, Seller shall provide reasonable assistance in responding to such inquiries or complaints.  The Purchaser shall reimburse Seller for any and all out-of-pocket expenses incurred by Seller in connection with its assistance of the Purchaser as provided in this Section 9.10 .
 
Section 9.11            Recall .  Subject to the indemnification rights of each party as set forth in Article X hereof, in the event that the Product is quarantined or recalled, or is subject to stop-sale action, whether voluntary or by governmental action, it is agreed and understood that any expenses, including reasonable fees of any experts or attorneys that may be utilized by either party, government fines or penalties, related to such recall, quarantine or stop-sale, shall be borne by Purchaser unless it is determined that Seller has breached its obligations under this Agreement and such breach is a significant basis upon which said recall, quarantine or stop-sale was initiated, in which case such expenses shall be shared according to the relative responsibility of each party.  Said determination may be made by the Governmental or Regulatory Authority involved, or by mutual agreement of the parties following examination and review of all records pertinent to the manufacture of the Product subject to such recall
 
Section 9.12            Post-Closing Orders and Payments .
 
(a)           From and for three months after the Closing Date, Seller shall promptly deliver to Purchaser any purchase orders for the Product received after the Closing, and refer all purchase inquiries it shall receive with respect to the Products in the Territory (other than with respect to Excluded Assets or Excluded Liabilities), to Purchaser or its designee.
 
 
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(b)           From and after the Closing, in the event Purchaser, on the one hand, makes a payment in respect of an Excluded Liability, or Seller, on the other hand, makes a payment in respect of an Assumed Liability as set forth in Section 2.02 of this Agreement, which ultimately is determined to be the responsibility of the other Party in accordance with Section 2.02 hereof, the other Party shall reimburse the Party which made the erroneous payment within fifteen (15) days after the receipt of an invoice containing supporting detail for such payment.  In the event Purchaser, on the one hand, received a payment in respect of an Acquired Asset, or Seller, on the other hand, receives a payment in respect of an asset of Seller which is not an Acquired Asset as set forth in Section 2.01 of this Agreement, which ultimately is determined to be a receivable of the other Party in accordance with Section 2.01 hereof, the Party which received the erroneous payment shall remit such amount to the other Party within fifteen (15) days after the receipt of such payment.
 
Section 9.13            Notification of Customers .  Seller and Purchaser shall jointly notify Seller’s direct customers (including wholesalers) of the Product after the Closing Date in forms of letter to be agreed upon, that Purchaser has acquired and Seller has transferred the right to market, distribute and sell the Product in the Territory.
 
Section 9.14            Assistance with Purchaser Regulatory Filings; Transfer of NDAs .
 
(a)           For the period of time commencing on the Closing Date and ending six months after the Closing Date, Seller shall provide reasonable assistance to Purchaser in its preparation and filing with the FDA of filings required to be filed by Purchaser in connection with the Product in the Territory, including without limitation, furnishing a letter(s) from Seller to the FDA, duly executed by the Seller, transferring the rights to the Transferred FDA Permits to the Purchaser once all regulatory files have been transferred.  To the extent that the next annual report with respect to any NDA is due more than six months from the Closing Date, Seller shall also provide reasonable assistance to Purchaser in the preparation of such annual report.  It is understood and agreed that Purchaser, as the owner of the Product Registration for the Products, shall have the responsibility for all regulatory filings after the Closing Date.  Seller’s obligations pursuant to this Section 9.14 shall be limited to assistance with respect to matters and information that are in the possession or control of Seller and not otherwise in the possession or control of Purchaser.
 
(b)           For the period from the Closing Date through six months thereafter, Seller shall cooperate with Purchaser in disclosing and copying any relevant records and reports which are required to be made, maintained and reported pursuant to any Governmental or Regulatory Authority or applicable Law in the Territory.  The parties agree to use their reasonable efforts to take any other actions required by the FDA or other Governmental or Regulatory Authority to effect the transactions contemplated hereby.  On the Closing Date, each of the parties hereto shall take any actions necessary to effect the transfer of the NDA and Permits from Seller to Purchaser, including notices to the FDA or other Governmental or Regulatory Authority regarding such transfer from Seller to Purchaser of the NDAs and Permits.  Except as otherwise expressly provided for herein, all costs related thereto shall be borne by Purchaser.
 
 
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Section 9.15            Marketing and Reference Materials .  Subject to the terms and conditions of Section 9.07(b) , if applicable, Seller grants to Purchaser a non-exclusive license to use, reproduce and make derivative works of the Marketing and Reference Materials in the Territory in connection with Purchaser’s marketing, use, and sale of the Product in the Territory.
 
Section 9.16            Transitional Assistance .  Seller, for a period of 120 days after the Closing Date, shall, at Purchaser’s sole cost and expense, provide to Purchaser reasonable transitional assistance in connection with its sale of the Product in the Territory; provided, however, (i) notwithstanding anything set forth in Section 9.14(b) , any costs in connection with the transfer of any NDA or Marketing Authorization Application to Purchaser shall be Seller’s sole cost and expense, and (ii) nothing contained herein shall require Seller to maintain any level of commercial infrastructure or expertise (other than regulatory) post-Closing to support Purchaser, including without limitation with respect to maintenance of field support, employees, promotional activities or managed care activities.
 
ARTICLE X
 
INDEMNIFICATION
 
Section 10.01         Indemnification by Seller .  From and after the Closing, Seller shall defend, indemnify and hold harmless Purchaser, its Affiliates and their respective employees, agents, officers and directors (collectively, the “ Purchaser Indemnitees ”), from and against any and all losses, liabilities, obligations, claims, fees (including, without limitation, reasonable documented attorneys’ fees and documented fees of other professionals), expenses and lawsuits (“ Losses ”) suffered or incurred by any Purchaser Indemnitee to the extent arising from or relating to any of the following:
 
(a)           the breach of any representation or warranty of Seller contained in this Agreement, any Other Acquisition Document or any certificate delivered hereunder;
 
(b)           the breach of or failure to comply with any covenant or obligation of Seller under this Agreement or any Other Acquisition Document;
 
(c)           the Excluded Liabilities; and
 
(d)           Seller’s portion of the Transfer Taxes.
 
Section 10.02          Indemnification by Purchaser .  From and after the Closing, Purchaser shall defend, indemnify and hold harmless Seller, its Affiliates and their respective employees, agents, officers and directors (collectively, the “ Seller Indemnitees ”), from and against any and all Losses suffered or incurred by any Seller Indemnitee to the extent arising from or relating to any of the following:
 
 
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(a)           the breach of any representation or warranty of Purchaser contained in this Agreement any Other Acquisition Document or any certificate delivered hereunder;
 
(b)           the breach of or failure to comply with any covenant or obligation of Purchaser under this Agreement or any Other Acquisition Document;
 
(c)           any Assumed Liability; and
 
(d)           Purchaser’s portion of the Transfer Taxes.
 
Section 10.03          Indemnification Procedure .
 
(a)            Procedures Relating to Indemnification for Third Party Claims .  In order to receive the benefits of the indemnity under Section 10.01 or Section 10.02 , as applicable, in respect of, arising out of or involving a claim or demand made by any Third Party (a “ Third Party Claim ”) against a Purchaser Indemnitee or Seller Indemnitee (either, an “ Indemnitee ”), such Indemnitee must:
 
(i)           give the indemnifying Party (the “ Indemnitor ”) written notice describing the matter in reasonable detail, including the nature of any claim or potential claim, promptly after the Indemnitee receives notice thereof; provided that failure of the Indemnitee to provide such notice shall not constitute a waiver of, or result in the loss of, such Party’s right to indemnification under this Agreement, except to the extent that the Indemnitor’s rights, and/or its ability to defend against or settle such claim or potential claim, are materially prejudiced by such failure to notify;
 
(ii)           allow the Indemnitor to assume the control of the defense or settlement with counsel of its choice reasonable satisfactory to the Indemnitee, provided that (A) settlement of, or an adverse judgment with respect to, the Third Party Claim shall not include any admission or ongoing obligation or restriction on the part of the Indemnitee, and with respect to indemnification by the Seller, such settlement may not adversely affect the rights of the Purchaser with respect to the Acquired Assets (including the Product) or the Assumed Liabilities without the Purchaser’s prior written consent, and (B) the Third Party Claim involves only monetary damages (which amount shall be fully indemnified by the Indemnitor); and
 
(iii)           reasonably cooperate with the Indemnitor in its defense of the claim (including, without limitation, making documents and records available for review and copying and making persons within the Indemnitee’s control available for pertinent interview and testimony), so long as such cooperation does not vitiate any legal privilege to which such Indemnitee is entitled.
 
 
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If the Indemnitor defends the Third Party Claim, the Indemnitee may at its expense and using attorneys of its choice, participate in, but shall not have any control of, the defense of such claim. The Indemnitor shall have no liability under this Article X as to any claim for which settlement or compromise of such claim, or an offer of settlement or compromise of such claim, is made by an Indemnitee without the prior written consent of the Indemnitor, which consent shall not be unreasonably withheld, delayed or conditioned.
 
Section 10.04          Procedures Related to Indemnification for Other Claims .  An Indemnitee seeking indemnification under Section 10.01 or Section 10.02, as applicable, that does not involve a Third Party Claim shall, as soon as reasonably practicable after receipt deliver to the Indemnitor, written notice (a “ Direct Claim Notice ”) describing in reasonable detail the facts giving rise to the indemnification claim to the extent then known, provided, however, that the failure by any Indemnitee to so notify the Indemnitor shall not relieve the Indemnitor from any liability which it may have to such Indemnitee under Section 10.01 or Section 10.02 , as applicable, except to the extent that the Indemnitor has been materially prejudiced by such failure.  The Indemnitor shall have thirty (30) days after its receipt of a Direct Claim Notice to (i) agree to the amount set forth in the Direct Claim Notice and pay such amount to such Indemnitee in immediately available funds or (ii) provide such Indemnitee with written notice that it disputes its obligation to provide the indemnification sought in the Direct Claim Notice (a “ Claim Dispute Notice ”).  If the Indemnitor does not notify the Indemnitee within forty-five (45) days following its receipt of such notice that Indemnitor disputes its liability to the Indemnitee with respect to such claim, such claim specified in the Direct Claim Notice shall be conclusively deemed a liability of the Indemnitor.  If the Indemnitor delivers a Claim Dispute Notice, the Indemnitee and the Indemnitor shall negotiate in good faith to resolve the matter.  In the event that the controversy is not resolved within 20 Business Days after the giving of the Claim Dispute Notice, the parties thereafter may pursue any and all available remedies at law (subject to the limitations and conditions provided in this Agreement).
 
Section 10.05          Losses Net of Insurance, Tax Benefits .  The amount of any Loss for which indemnification is provided under this Article X shall be net of any amounts recovered by the Indemnitee under insurance policies or in respect of any indemnity or contribution with respect to such Loss; provided that in no event shall any indemnification payment be delayed in anticipation of the receipt of any such insurance proceeds, and provided further, that in the event a portion of indemnification payment is made with respect to which proceeds are later received, the Indemnitee shall promptly remit payment to the Indemnitor with respect to that portion of such payment which is later covered.
 
Section 10.06          Limitation on Indemnification .
 
(a)           Notwithstanding anything to the contrary herein, (i) Seller shall not have any liability under Section 10.01(a) , unless the aggregate of all Losses for which Seller would be liable under Section 10.01(a) exceeds on a cumulative basis, an amount equal to $25,000 (the “ Deductible Amount ”), and then only to the extent of any such excess, (ii) Seller’s aggregate liability under Section 10.01(a)  and (b) shall in no event exceed, on a cumulative basis, the Seller Liability Cap, provided, however, that there shall be no cap on Seller’s liability for Losses under Sections 10.01(c) and (d ), (iii) the Purchaser’s aggregate liability under Sections 10.02(a) and (b) shall in no event exceed, on a cumulative basis, the Purchaser Liability Cap; provided, however that there shall be no cap on the Purchaser’s liability for Losses under Section 10.02(c) and (d) .
 
 
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(b)           Following the Closing, the Parties’ rights to indemnification pursuant to this Article X shall, except for equitable relief and specific performance of covenants that survive Closing, be the sole and exclusive remedy available to the parties with respect to any matter arising under or in connection with this Agreement or the transactions contemplated hereby, other than for claims of intentional misrepresentation or fraud.  Each Party hereby waives, from and after the Closing Date, to the fullest extent permitted under applicable Law, any and all rights, claims and causes of action it or any of its Affiliates may have against the other Party and its Affiliates arising under or based upon this Agreement, the Other Acquisition Documents, any document or certificate delivered in connection herewith, the Product, the Acquisition, the Acquired Assets, the Excluded Assets, the Excluded Liabilities and the Assumed Liabilities, or any federal, state, local or foreign statute, law, ordinance, rule or regulation or otherwise (except pursuant to the indemnification provisions set forth in this Article X ).
 
(c)           NOTWITHSTANDING ANY PROVISION HEREIN, NEITHER SELLER NOR PURCHASER SHALL IN ANY EVENT BE LIABLE TO THE OTHER PARTY OR ANY INDEMNITEE ON ACCOUNT OF ANY INDEMNITY OBLIGATION SET FORTH IN SECTION 10.01 OR SECTION 10.02 FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL OR PUNITIVE DAMAGES (EXCEPT TO THE EXTENT THE PARTY OR INDEMNITEE IS REQUIRED TO PAY SUCH TYPES OF DAMAGES TO A THIRD PARTY), INCLUDING LOSS OF FUTURE REVENUE OR INCOME, LOSS OF BUSINESS REPUTATION OR OPPORTUNITY RELATING TO THE BREACH OR ALLEGED BREACH OF THIS AGREEMENT, OR DIMINUTION OF VALUE OR ANY DAMAGES BASED ON ANY TYPE OF MULTIPLE.
 
Section 10.07          Termination of Indemnification .
 
(a)           The obligations to indemnify and hold harmless an Indemnitee pursuant to (i) Section 10.01(a) and Section 10.02(a) , shall terminate when the applicable representation or warranty terminates pursuant to Section 10.07(b) below, and (ii) the other clauses of Section 10.01 and Section 10.02 , shall survive and remain in full force for the applicable periods described therein or, if no such period is specified,  indefinitely; provided, however, that for the avoidance of doubt, there shall be no time limit, other than applicable statute of limitations, for indemnification claims brought by Seller arising from Section 10.02(c) and by Purchaser arising from Section 10.03(c) ; provided further , however , that as to foregoing clause (i) such obligations to indemnify and hold harmless shall not terminate with respect to any item as to which the Indemnitee or the related Party thereto shall have, before the expiration of the applicable period, previously made a claim by delivering a notice of such claim (stating in reasonable detail the basis of such claim) to the Indemnitor.
 
 
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(b)           The representations and warranties of Seller contained in Article V shall survive the Closing solely for purposes of Section 10.01(a) and shall terminate at the close of business on the 12-month anniversary following the Closing Date (other than with respect to those representations and warranties of Seller contained in Section 5.01 , Section 5.02 , and Section 5.03(b) , which shall survive indefinitely, and those representations and warranties contained in Section 5.08 , which shall survive the Closing Date and expire 60 days after the expiration of the applicable statute of limitations), and the representations and warranties of Purchaser contained in Article VII shall survive the Closing solely for purposes of Section 10.02(a) , and shall terminate at the close of business on the 12 month anniversary following the Closing Date (other than with respect to those representations and warranties of Purchaser contained in Section 7.01 , Section 7.02 and Section 7.05 , which shall survive indefinitely).
 
Section 10.08           Tax Treatment of Indemnification Payment s .  For all Tax purposes, each of Purchaser, Seller and their respective Affiliates agrees to treat any indemnity payment under this Agreement as an adjustment to the Purchase Price received by Seller for the transactions contemplated by this Agreement unless a final determination (as defined in Section 1313 of the Code) provides otherwise.
 
Section 10.09          No Setoff .  Purchaser shall not, and shall have no right to, setoff any Losses suffered by Purchaser or any Purchaser Indemnitee against any Net Sales Milestone or any payments to be made by Purchaser to Seller under this Agreement or any of the Other Acquisition Documents.
 
Section 10.10          No Double Recovery .  Neither Party shall be entitled to recover the same or duplicative damages with respect to the same breach from the other Party under more than one of this Agreement and the Other Acquisition Documents.  For the purposes of this Section 10.10 , each Party shall be deemed to have made and received all payments made and received by its Affiliates.
 
ARTICLE XI
 
TERMINATION
 
Section 11.01           Termination .  This Agreement may be terminated and the transactions contemplated hereby abandoned by:
 
(a)           mutual written consent of Seller and Purchaser;
 
(b)           by Seller or Purchaser if the Closing does not occur on or prior to December 24, 2015 (the “ Termination Date ”);
 
(c)           Purchaser, if there has been a material breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Seller pursuant to this Agreement and such breach, inaccuracy or failure has not been cured by Seller within 30 days of Purchaser’s receipt of written notice of such breach, inaccuracy or failure from Purchaser; provided that there is not then a material breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Purchaser pursuant to this Agreement;
 
 
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(d)           Seller, if there has been a material breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Purchaser pursuant to this Agreement and such breach, inaccuracy or failure has not been cured by Purchaser within 30 days of Purchaser’s receipt of written notice of such breach, inaccuracy or failure from Seller; provided that there is not then a material breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Seller pursuant to this Agreement;
 
(e)           Seller, if any of the conditions set forth in Section 4.02 shall not have been, or if it becomes reasonably apparent that any of such conditions will not be, fulfilled by the Termination Date, unless such failure shall be due to the failure of Seller to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;
 
(f)           Purchaser, if any of the conditions set forth in Section 4.01 shall not have been, or if it becomes reasonably apparent that any of such conditions will not be, fulfilled by the Termination Date, unless such failure shall be due to the failure of Purchaser to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing; or
 
(g)           either Party, if the Closing does not occur on or prior to the Termination Date, provided , however , that the Party seeking termination is not in breach in any material respect of any of its representations, warranties, covenants or agreements contained in this Agreement.
 
Section 11.02          Return of Confidential Information .  If the transactions contemplated by this Agreement are terminated as provided herein:
 
(a)           Purchaser shall return to Seller all documents and other material received by Purchaser, its Affiliates and their respective representatives from Seller, any of its Affiliates or any of their respective Affiliates or representatives relating to the transactions contemplated hereby and by the Other Acquisition Documents, whether so obtained before or after the execution hereof, to Seller; and
 
(b)           All confidential information received by Purchaser, its Affiliates and their respective representatives with respect to Seller, any of its Affiliate or any of their respective Affiliates and the Acquired Assets shall be treated in accordance with the Confidentiality Agreement, which shall remain in full force and effect notwithstanding the termination of this Agreement.
 
 
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Section 11.03          Effect of Termination .  In the event of termination by Seller or Purchaser pursuant to this Article XI , written notice thereof shall forthwith be given to the other Party and the transactions contemplated by this Agreement shall be terminated, without further action by either Party .  If this Agreement is terminated and the transactions contemplated hereby are abandoned as described in this Article XI , this Agreement shall become void and of no further force or effect, except for the provisions of (a)relating to the confidentiality obligations of the Parties; (b) Section 12.07 relating to public announcements; (c) Section 12.08 relating to governing law and forum; (d) Section 12.09 relating to waiver of jury trial; (e) Section 12.10 relating to expenses; and (f) this Article XI .  Nothing in this Article XI shall be deemed to release either Party from any liability for any breach by such Party of the terms and provisions of this Agreement prior to the termination of this Agreement.
 
ARTICLE XII
 
MISCELLANEOUS
 
Section 12.01         Assignment .  Except as otherwise expressly permitted by this Agreement, neither Party shall assign or otherwise transfer this Agreement or any interest herein or right hereunder without the prior written consent of the other Party, and any such purported assignment, transfer or attempt to assign or transfer any interest herein or right hereunder shall be void and of no effect; provided, however, that, (i) Purchaser may, without such consent, assign its rights to purchase the Acquired Assets hereunder, in whole or in part, to one or more of its Affiliates, provided that no such assignment shall relieve the Purchaser of any of its obligations hereunder, and (ii) following the Closing, either Party shall have the right, without such consent, on written notice to the other Party, to assign all of its rights and obligations hereunder to a successor to all or substantially all of such Party’s business or assets, or to a successor of that portion of such Party’s business to which this Agreement relates, in each case whether by way of merger, sale of stock, sale of assets or other similar transaction (or series of related transactions); provided, further, that in the case of an assignment by Purchaser in the foregoing cases, Purchaser shall provide notice to Seller containing the name and contact information of the assignee, and any assignee shall expressly agree to assume Purchaser’s obligations pursuant to this Agreement, including, the applicable payment obligations under Section 3.02 .  Subject to the foregoing, this Agreement will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.
 
Section 12.02          Non-Waiver .  Any failure on the part of a Party to enforce at any time or for any period of time any of the provisions of this Agreement shall not be deemed or construed to be a waiver of such provisions or of any right of such Party thereafter to enforce each and every such provision on any succeeding occasion or breach thereof.
 
Section 12.03          No Third-Party Beneficiaries .  This Agreement is for the sole benefit of the Parties and their successors and permitted assigns and the Indemnitees, and nothing herein express or implied shall give or be construed to give to any Person, other than the Parties and such successors and permitted assigns and the Indemnitees, any legal or equitable rights hereunder.
 
 
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Section 12.04           Severability .  If any term or other provision of this Agreement is determined to be invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other terms and provisions of the Agreement shall remain in full force and effect.  Upon such determination, the Parties shall negotiate in good faith to modify this Agreement so as to give effect to the original intent of the Parties to the fullest extent permitted by applicable Law.
 
Section 12.05          Entire Agreement; Amendments .  This Agreement, together with the Other Acquisition Documents and the Confidentiality Agreement (in each case, following execution and delivery thereof), contains the entire understanding of the Parties with respect to the subject matter hereof and thereof and supersedes all previous and contemporaneous verbal and written understandings, agreements, representations and warranties with respect to such subject matter or on which the Parties may have relied.  This Agreement may not be amended, supplemented or modified except by an instrument in writing signed on behalf of each Party.  No waiver of any provision of this Agreement shall be valid unless the waiver is in writing and signed by the waiving Party.
 
Section 12.06          Notices .  Unless otherwise explicitly set forth herein, any notice required or permitted to be given hereunder shall be in writing and shall be deemed properly delivered, given and received: (a) if delivered personally by hand, when delivered; (b) if sent by electronic mail or other electronic transmission, upon delivery; (c) if sent by registered, certified or first class mail, at 5:00 p.m., New York City time, on the third Business Day after being sent; and (d) if sent by reputable overnight courier, at 5:00 p.m., New York City time, one Business Day after being sent, in each case to the addresses of each Party set forth below or to such other address or addresses as shall be designated in writing in the same matter:
 
(a)           If to Purchaser:
 
Midatech Pharma PLC
65 Innovation Drive
Milton Park, Abingdon
Oxfordshire OX14 4RQ
United Kingdom
Attn: Nick Robbins-Cherry
Telephone: +44 1235 841 575
Email: nickrc@midatechpharma.com

with a copy (which shall not constitute notice) to:
 
 
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Brown Rudnick LLP
8 Clifford Street
London W1S 2LQ
United Kingdom
Attn: Tim Matthews
Facsimile: 020 7851 6100
Telephone: 020 7851 6126
Email: tmatthews@brownrudnick.com
 

and
 

Brown Rudnick LLP
One Financial Center
Boston, Massachusetts 02110
United States of America
Attn: Sam Williams
Facsimile: 617-289-0440
Telephone: 617-856-8200
Email: swilliams@brownrudnick.com

(b)           If to Seller:
 
Galena Biopharma, Inc.
2000 Crow Canyon Place, Suite 380
San Ramon, CA 94583
Attention:      Chief Executive Officer
Facsimile:       855-883-7422
Email: mwschwartz@galenbiopharma.com
 
with a copy (which shall not constitute notice) to:
Fredrikson & Byron, P.A.
200 South Sixth Street, Suite 4000
Minneapolis, MN 55402
Attention:      Christopher J. Melsha
Facsimile:       (612) 492-7077
Email: cmelsha@fredlaw.com
 
Section 12.07          Public Announcements ; Registration and Filing of this Agreement.
 
 
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(a)           Neither Party shall make any public announcement regarding this Agreement, or the subject matter contained herein, without the prior written consent of the other Party (which consent will not be unreasonably withheld, conditioned or delayed by such other Party), except to the extent required to be disclosed (i) to or by any Governmental or Regulatory Authorities; (ii) to comply with applicable Laws or the requirements of any Governmental or Regulatory Authority (including, without limitation, to comply with SEC, the United Kingdom Financial Conduct Authority or stock exchange (including the NASDAQ Stock Market LLC, the London Stock Exchange plc and the AIM Market of the London Stock Exchange plc) disclosure requirements), or (iii) to comply with judicial process or an order of any Governmental or Regulatory Authority of competent jurisdiction; provided, however, that in each case the Party required to disclose such information shall use its reasonable best efforts to give the other Party reasonable advance notice and review of any such disclosure.  Notwithstanding the foregoing, the Parties shall coordinate on a mutually acceptable joint press release to be issued by each of the Parties in connection with the execution of this Agreement.
 
(b)           To the extent, if any, that either Party concludes in good faith that it or the other Party is required to file or register this Agreement or a notification thereof with any Governmental or Regulatory Authority including, without limitation, the U.S. Securities and Exchange Commission, in accordance with law, such Party shall inform the other Party thereof. The Parties shall cooperate, each at its own expense, in such filing, registration or notification and shall execute all documents reasonably required in connection therewith. In such filing, registration or notification, the Parties shall request confidential treatment of any sensitive provisions of this Agreement, to the extent permitted by law. The Parties shall promptly inform each other as to the activities or inquiries of any such Governmental or Regulatory Authority relating to this Agreement, and shall reasonably cooperate to respond to any request for further information therefrom on a timely basis.
 
Section 12.08          Governing Law; Forum .  This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of law thereof.  Any judicial proceeding brought with respect to this Agreement must be brought in any court of competent jurisdiction in the State of Delaware, and, by execution and delivery of this Agreement, each Party (a) accepts, generally and unconditionally, the exclusive jurisdiction of such courts and any related appellate court, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement, and (b) irrevocably waives any objection it may now or hereafter have as to the venue of any such suit, action or proceeding brought in such a court or that such court is an inconvenient forum.
 
Section 12.09         WAIVER OF JURY TRIAL .  EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY .  EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 12.09 .
 
 
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
Section 12.10          Expenses .  Whether or not the transactions contemplated hereby are consummated, and except as otherwise specifically provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such costs or expenses.
 
Section 12.11          Relationship of the Parties .  In making and performing this Agreement, the Parties are acting, and intend to be treated, as independent entities and nothing contained in this Agreement shall be construed or implied to create an agency, partnership, joint venture, or employer and employee relationship between Seller and Purchaser or any of their respective Affiliates.  Except as otherwise expressly provided herein, neither Party may act on behalf of the other Party, and neither Party may make (or has any authority to make) any representation, warranty or commitment, whether express or implied, on behalf of the other Party or incur any charges or expenses for or in the name of the other Party.  No Party shall be liable for the act of any other Party unless such act is expressly authorized in writing by both Parties.  The relationship of the Parties under this Agreement is, and is intended to be, one of independent contractors hereunder.
 
Section 12.12          Counterparts .  This Agreement shall become binding when any one or more counterparts hereof, individually or taken together, shall bear the signatures of each of the Parties.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against the Party whose signature appears thereon, but all of which taken together shall constitute but one and the same instrument.  A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
 
 
[Signature Page Follows]
 
 
49
 
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IN WITNESS WHEREOF, the Parties have caused this Asset Purchase Agreement to be duly executed as of the date first written above.
 
 
 
SELLER:
   
 
GALENA BIOPHARMA, INC.
   
   
 
/s/ Mark W. Schwartz
 
Name: Mark W. Schwartz
 
Title: President & Chief Executive Officer
   
   
 
PURCHASER:
   
 
MIDATECH PHARMA PLC
   
   
 
/s/ James N. Phillips
 
Name:
James N. Phillips
 
Title:
Chief Executive Officer
 
 
[Signature page to Asset Purchase Agreement]
 
 
 
Exhibit 4.17

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LICENSE AND SUPPLY AGREEMENT
 
 
By and between
 
 
MONOSOL RX, LLC, and
 
 
GALENA BIOPHARMA, INC.
 
 
 
 
 
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TABLE OF CONTENTS
 
Page
 
   
SECTION 1. INTERPRETATION AND CONSTRUCTION; DEFINITIONS
1
   
1.1.
Interpretation and Construction
1
1.2.
Definitions
 1
     
SECTION 2. RIGHTS AND OBLIGATIONS
9
   
2.1.
Commercialization License
9
2.2.
Manufacturing Exclusivity
10
2.3.
Supply Interruption
10
2.4.
Effect of Supply Interruption
11
2.5.
Housemark Licenses
11
2.6.
Trademark License
11
2.7.
Marking of Promotional Materials
11
2.8.
MSRx Retained Rights
12
2.9.
Exclusivity
12
     
SECTION 3. ALLIANCE MANAGEMENT
12
   
3.1.
Development and Commercialization Committee
12
3.2.
Expenses
14
     
SECTION 4. DEVELOPMENT; MAINTENANCE OF REGULATORY APPROVALS
14
   
4.1.
General
 14
4.2.
Development Responsibilities of MSRx
 14
4.3.
Clinical Costs
15
4.4.
Development Responsibilities of Galena
15
4.5.
Changes
 15
     
SECTION 5. COMMERCIALIZATION
16
   
5.1.
Galena Responsibility and Control
16
5.2.
Specific Commercialization Rights and Obligations of Galena
 16
5.3.
Product Launch and Market Coverage
 17
5.4.
Commercialization and Marketing Expenses
 17
     
SECTION 6. MANUFACTURING
17
   
6.1.
Supply Obligations
17
6.2.
Supply Price
18
6.3.
Raw Materials
18
6.4.
Quality Assurance and Quality Control; Expiration of Product
18
6.5.
Forecasts, Order and Delivery of Products
18
6.6.
Invoice
19
6.7.
Product Not in Compliance with Purchase Order
 19
6.8.
Inspection by Galena
20
6.9.
Inspections by Regulatory Authorities
20
6.10.
Quality Agreement
20
 
 
 
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SECTION 7. PAYMENTS AND REPORTS
20
   
7.1.
Milestone Payments
20
7.2.
Form of First Milestone Payment
21
7.3.
Royalties
22
7.4.
Royalty Reports and Payments
23
7.5.
Manner of Payment
23
7.6.
Bartering Prohibited
24
7.7.
Taxes and Withholding
24
7.8.
Accounting
24
7.9.
Record Keeping; Audits
24
7.10.
Underpayments and Overpayments
25
     
SECTION 8. REPRESENTATIONS, WARRANTIES AND COVENANTS
25
   
8.1.
Representations, Warranties and Covenants of Each Party
25
8.2.
Additional MSRx Representations, Warranties and Covenants
26
8.3.
Additional Galena Representations, Warranties and Covenants
27
8.4.
Disclaimer
27
     
SECTION 9. CONFIDENTIAL INFORMATION
28
   
9.1.
General
28
9.2.
Exceptions
28
9.3.
Permitted Disclosures
29
9.4.
Confidential Terms
29
9.5.
Equitable Remedies
29
     
SECTION 10. INDEMNIFICATION; LIMITATION OF LIABILITY
29
   
10.1.
Indemnification by Galena
29
10.2.
Indemnification by MSRx
30
10.3.
Procedure for Indemnification
30
10.4.
Assumption of Defense
31
10.5.
Insurance
31
10.6.
Limitation of Liability
32
     
SECTION 11. TERM AND TERMINATION
32
   
11.1.
Term
32
11.2.
Termination
32
11.3.
No Waiver
33
11.4.
Effects of Termination
34
     
SECTION 12. REGULATORY MATTERS
35
   
12.1.
Regulatory Activities in the Territory
35
12.2.
Communications and Meetings with Governmental Authorities
35
12.3.
Regulatory Information
36
12.4.
Recalls or Other Corrective Action
37
12.5.
Events Affecting Integrity or Reputation
38
 
 
 
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SECTION 13. INTELLECTUAL PROPERTY
38
   
13.1.
Patent Prosecution and Maintenance
38
13.2.
Infringement by Third Parties
38
13.3.
Infringement of Third Party Rights
39
     
SECTION 14. MISCELLANEOUS
39
   
14.1.
Independent Contractor
39
14.2.
Registration and Filing of this Agreement
39
14.3.
Notices
40
14.4.
Binding Effect; No Assignment
41
14.5.
No Implied Waivers; Rights Cumulative
41
14.6.
Severability
41
14.7.
Force Majeure
41
14.8.
Amendment
42
14.9.
Rules of Construction
42
14.10.
Publication
42
14.11.
Expenses
42
14.12.
Governing Law; Submission to Jurisdiction; Waiver
42
14.13.
Entire Agreement
43
14.14.
Third Party Beneficiaries
43
14.15.
Rights in Bankruptcy
43
14.16.
Counterparts; Signatures
44
 
 
 
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LICENSE AND SUPPLY AGREEMENT
 
This LICENSE AND SUPPLY AGREEMENT (together with any Schedules hereto, this “ Agreement ”) is entered into as of July 17, 2014 by and between MonoSol Rx, LLC, a Delaware limited liability company (“MSRx”), and Galena Biopharma, Inc., a Delaware corporation (“ Galena ”). MSRx and Galena are sometimes referred to hereinafter individually as a “ Party ” and collectively as the “ Parties .”
 
RECITALS:
 
A.                MSRx owns patented and trade secret proprietary technology related to film- based drug delivery systems which are orally dissolving film strips (“ PharmPilm ”) containing active pharmaceutical ingredients.
 
B.                 MSRx and Galena desire to collaborate on the commercialization of a PharmFilm product containing the active pharmaceutical ingredient Ondansetron (the “ Product ”, as further defined below) in the Territory (as defined below).
 
C.                 Galena wishes to obtain the exclusive right to commercialize the Product in the Territory and MSRx desires to grant such an exclusive right to Galena, pursuant to the terms and subject to the conditions set forth in this Agreement.
 
D.                 In consideration of the mutual representations, warranties and covenants contained herein, the Parties agree as follows:
 
SECTION 1. INTERPRETATION AND CONSTRUCTION; DEFINITIONS
 
1.1.               Interpretation and Construction . The headings of Sections in this Agreement are provided for convenience only and shall not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement shall be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided in this Agreement, the word “including” does not limit the preceding words or terms and shall be deemed to be followed by the words “without limitation.” Unless otherwise expressly provided in this Agreement, the terms “shall have responsibility for”, “shall be responsible for” or the like, shall be deemed to be followed by “and shall be obligated to duly carry out such responsibility.”
 
1.2.              Definitions . As used herein, the following terms shall have the following :
 
1.2.1       “ Act ” means, as applicable, the United States Federal Food, Drug, and Cosmetic Act of 1938, as amended (21 U.S.C. §§ 301 et seq.).
 
1.2.2         “ Adverse Drug Experience ” means any of: an “adverse drug experience,” a “life-threatening adverse drug experience,” a “serious adverse drug experience,” or an “unexpected adverse drug experience,” as those terms are defined at either 21 C.F.R. §312.32 or 21 C.F.R. §314.80, and any other applicable regulations promulgated by the FDA, as related to the use of the Product which requires reporting to a Regulatory Authority.
 
 
 
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1.2.3         “ Affiliate ” of a Person means any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such first Person. “Control” and, with correlative meanings, the terms “controlled by” and “under common control with,” shall mean to possess the power to direct the management or policies of a Person, whether through: (a) direct or indirect beneficial ownership of fifty percent (50%) or more of the voting interest in such entity; (b) the right to appoint fifty percent (50%) or more of the directors of such entity; or (c) by contract or otherwise. The Parties acknowledge and agree that under no circumstances shall the term “Affiliate” as defined herein mean as to either Party, for any purpose, any (i) Venture Entity having, directly or indirectly, an interest in or controlling, alone or with others, such Party, or (ii) other Persons in which such Venture Entity have an interest or are controlled by, controlling or are under common control with such Person, unless such Party directly possesses the power to control and direct management of such other Persons.
 
1.2.4         “ Agreement ” has the meaning set forth in the Preamble of this Agreement.
 
1.2.5         “ Annual Net Sales ” means the total Net Sales of the Product in the Territory for a given calendar year (or any part thereof, as applicable in the given context) in which Product is sold.
 
1.2.6         “ API ” means the active pharmaceutical ingredient Ondansetron, including any and all salt forms thereof.
 
1.2.7        “ Applicable Law ” means all laws, rules and regulations, including any rules, regulations, guidelines, or other requirements of Regulatory Authorities, applicable to the Commercialization or Supply of the Product, as the case may be, that may be in effect from time to time in the Territory.
 
1.2.8        “ Average Field Force ” means, for any month or calendar quarter, the simple average number of Field Personnel each day of such month or calendar quarter, as applicable, which shall be the quotient determined by dividing (i) the sum of the number of Field Personnel on each day of such month or calendar quarter by (ii) the number of days in such month or calendar quarter, as applicable.
 
1.2.9        “ Bankruptcy Code ” has the meaning set forth in Section 14.15.
 
1.2.10       “ Business Day ” means any day on which banking institutions in New York, New York, United States are open for business.
 
1.2.11      “ Calendar Quarter ” means the three month period in any given calendar year ending on March 31, June 30, September 30, and December 31.

1.2.12       “ Certificate of Analysis ” means a certificate evidencing the analytical tests conducted on a specific lot of Product reflecting that such Product and any Raw Materials used therein conform to the relevant Specifications and applicable regulations and setting forth, inter alia, the items tested and test results, and accompanied by all documentation required by Applicable Law and/or a Regulatory Authority to Commercialize the Product in the Territory.
 
1.2.13       “ Certificate of Compliance ” means a certificate evidencing that the Product delivered to Galena was manufactured in accordance with cGMP and any applicable Regulatory Approvals.
 
1.2.14      “ cGCP ” means the applicable regulatory requirements for current good clinical practices promulgated by the FDA under 21 C.F.R. § 50, as the same may be amended from time to time.
 
1.2.15      “ cGLP ” means the applicable regulatory requirements for current good laboratory practices promulgated by the FDA under 21 C.F.R. § 58, as the same may be amended from time to time.
 
 
 
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1.2.16       “ cGMP ” means the applicable regulatory requirements for current good manufacturing practices promulgated by the FDA under 21 C.F.R. §§ 210, 211, as the same may be amended from time to time.
 
1.2.17       “ Commercialization ” means any and all activities directed to marketing, promoting, distributing, offering for sale and selling the Product. When used as a verb, “ Commercialize ” means to engage in Commercialization.
 
1.2.18      “ Commercially Reasonable Efforts ” means, with respect to a Party, the efforts and resources which would be used (including, without limitation, the promptness in which such efforts and resources would be applied) by that Party relating to a certain activity or activities, consistent with its normal business practices, which are equivalent to the general level of effort and resources which would be used in the pharmaceutical industry by a company similar in size and scope, with respect to a product having a similar market potential and at a similar stage in life cycle, taking into account, as applicable, the competitiveness of the marketplace and any legal and regulatory issues involved, the profitability of the applicable products and other relevant factors, including technical, legal, scientific, medical, sales performance, and/or marketing factors.
 
1.2.19       “ Competing Product ” means any alternative PharmFilm or similar thin film product containing the API that is marketed and sold in the Territory.
 
1.2.20       “ Confidential Information ” has the meaning set forth in Section 9.1.
 
1.2.21       “ Development ” means drug development activities which occur as a conditions set forth by the FDA as post-Regulatory Approval requirements for the NDA #022524 or are required to keep the NDA in good standing including, among other things: pharmaceutical formulation development, ICH stability testing, cGMP, cGMP audits, cGCP, cGCP audits, cGLP, cGLP audits, analytical method validation, manufacturing process validation, cleaning validation, scale-up, quality assurance/quality control systems and their
management, statistical analysis and report writing, clinical studies, regulatory filing submissions and approvals, and regulatory affairs related to the foregoing. When used as a verb, “ Develop ” means to engage in Development.
 
1.2.22       “ Disclosing Party ” has the meaning set forth in Section 9.1.
 
1.2.23       “ Dosage Strengths ” means the 4mg and 8mg dosage strengths of the
 
Product.
 
1.2.24       “ Drug Product ” means a drug product as defined in 21 C.F.R. § 314.3 for administration to human subjects and “API” as defined by ICH Q7.
 
1.2.25      “ Escrow Agreement ” means that certain Escrow Agreement dated the date hereof by and among MSRx, Galena, Richard D. Sparkman, as Trustee for the Chapter 7 Bankruptcy Estates of Vestiq Holdings, Inc. and its subsidiaries, and U.S. Bank National Association, a national banking association, as escrow agent.
 
1.2.26      “ Effective Date ” means the date this Agreement is released from escrow pursuant to the Escrow Agreement.
 
 
 
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1.2.27      “ FDA ” means the United States Food and Drug Administration, and any of its successor agencies or departments.
 
1.2.28       “ Field Personnel ” means full-time employees of Galena and independent contractors engaged by Galena on a full-time basis who (x) are not based at Galena’s principal place of business; (y) spend substantially all of their time as a sales representatives, contracting/account managers, medical science liaisons or marketing or medical representatives working primarily with respect to commercial products; and (z) work in the field visiting physicians, pharmacies, institutions and other customers or potential customers whose primary responsibility is (a) to influence prescribing and purchasing products or (b) to develop contractual or business relationships for products.
 
1.2.29      “ First Commercial Sale ” means the first sale of the Product to a Third Party by Galena or its Affiliates within the Territory.
 
1.2.30        “ Force Majeure ” has the meaning set forth in Section 14.7.
 
1.2.31       “ GAAP ” means accounting principles generally accepted in the United States, consistently applied.
 
1.2.32       “ Galena ” has the meaning set forth in the Preamble to this Agreement.
 
1.2.33       “ Galena Common Stock ” means the common stock of Galena, par value $0.0001 per share.
 
1.2.34      “ Galena Housemark ” means collectively the name and logo of Galena or any of its Affiliates as identified on Schedule 1.2 attached hereto and made a part hereof.

1.2.35      “ Indemnitee ” has the meaning set forth in Section 10.3.1.

1.2.36      “ Indemnitor ” has the meaning set forth in Section 10.3.1.

1.2.37      “ Indication ” means the approved indications for Zuplenz as of the Effective Date. For avoidance of doubt, the currently approved indications are prevention of nausea and vomiting associated with highly emetogenic cancer chemotherapy, prevention of nausea and vomiting associated with initial and repeat courses of moderately emetogenic cancer chemotherapy, prevention of nausea and vomiting associated with radiotherapy in patients receiving total body irradiation, single high-dose fraction to abdomen, or daily fractions to the abdomen, and prevention of postoperative nausea and/or vomiting in humans.

1.2.38      “ Intellectual Property ” means all: (a) all patents, patent applications including provisional applications and statutory invention registrations, including reissues, divisions, continuations, continuations-in-part, and reexaminations, all inventions disclosed therein; (b) copyrightable works, copyrights in works of authorship of any type, including computer software and industrial designs, registrations and applications for registration thereof; (c) trade secrets, know-how, processes, specifications, product designs, manufacturing information, engineering and other manuals and drawings, standard operating procedures, flow diagrams, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, safety, quality assurance, quality control and clinical data, technical information, data, research records, supplier lists and similar data and information and other material confidential or proprietary technical, business and other information necessary or useful to Supply or Commercialize the Product in the Territory, and all rights in any jurisdiction to limit the use or disclosure thereof with respect to the Supply or Commercialization of the Product in the Territory; (d) including with respect to extensions and the like regarding any of the foregoing; (e) any and all rights of application regarding any of the foregoing; and (f) as further provided in Section 13.2, rights to sue and recover damages or obtain injunctive relief for infringement, or misappropriation thereof.
 
 
 
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1.2.39      “ Lien ” or “ Liens ” means any mortgage, pledge, security interest, right of first refusal, option, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof), any sale of receivables with recourse against MSRx, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute, or any subordination arrangement in favor of any Third Party other than in connection with MSRx’s commercial lending arrangements.

1.2.40      “ Losses ” means any and all damages (including all incidental, consequential, statutory and treble damages except as otherwise specifically limited in this Agreement), awards, deficiencies, settlement amounts, defaults, assessments, fines, dues, penalties, costs, fees, liabilities, obligations, taxes, liens, losses, lost profits and expenses (including, without limitation, court costs, interest and reasonable fees of attorneys, accountants and other experts) incurred by or awarded to Third Parties and required to be paid to Third Parties with respect to a Third Party Claim by reason of any judgment, order, decree, stipulation or injunction, or any settlement entered into in accordance with the provisions of this Agreement, together with all documented out-of-pocket costs and expenses incurred in complying with any judgments, orders, decrees, stipulations and injunctions that arise from or relate to a Third Party Claim.

1.2.41      “ Marketing Expenses ” means all costs and expenses incurred in connection with the Commercialization of the Product in the Territory, including, without limitation: (a) marketing, advertising, sampling, and promotional activities; (b) marketing studies; (c) primary and secondary market research; (d) promotional materials; and (e) samples. Marketing Expenses shall not include any deductions allowed under the definition of Net Sales.

1.2.42      “ Milestone ” means the First Milestone, the Second Milestone, the Third Milestone, and each Net Sales Milestone, all as described in Section 7.1.

1.2.43      “ MSRx ” has the meaning set forth in the Preamble to this Agreement.

1.2.44      “ MSRx Housemark ” means collectively the name and logo of MSRx or any of its Affiliates as identified on Schedule 1.1 attached hereto and made a part hereof.

1.2.45      “ MSRx IP ” means any and all Intellectual Property and Regulatory Approvals owned or controlled by MSRx or its Affiliates and which is useful or necessary to Supply or Commercialize the Product.

1.2.46      “ MSRx Patents ” has the meaning set forth in Section 13.1.1.

1.2.47      “ NDA ” means the approved new drug application for the Product under NDA #022524, including all amendments and supplements thereto and all documentation submitted to the FDA in connection therewith.
 
 
 
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1.2.48      “ Net Sales ” means, for any period of determination, the aggregate amount invoiced by Galena (or any Affiliate, successor, subcontractor, or agent of Galena) to a Third Party distributor, agent, contractor or end user for the sale of Product during such period less amounts for the following accruals: (a) Product Supply Price, (b) credits, refunds, allowances, charge-backs, rebates, fees, reimbursements, and similar payments provided to wholesalers, chains, mass merchandisers, group purchasing organizations and other distributors, buying groups, health care insurance carriers, pharmacy benefit management companies, health maintenance organizations, other institutions or health care organizations, any governmental, quasi-governmental or regulatory body, agency or authority in respect of any state or federal Medicare, Medicaid or similar programs or other customers; (c) credits or discounts related to sales promotions, trade show discounts and stocking allowances and trade volume and cash discounts and rebates (including coupons and government charge-backs) in amounts that are usual and customary; (d) any price adjustments, shelf stock or floor stock adjustments, billing errors, rejected goods, product recalls, damaged goods and returns, allowances, adjustments, reimbursements, Third Party administration fees, discounts, rebates, voucher and coupon redemptions, or other price reductions provided to any customer; (e) any invoiced charge for freight, insurance, handling, or other transportation costs, to the extent included in the gross amount invoiced to the customer; (f) rebates or other price reductions provided any governmental, quasi-governmental or regulatory body, agency or authority in respect of any state or federal Medicare, Medicaid or similar programs; and (g) sales, use, and other like taxes, duties or excises, excluding income tax. Notwithstanding, the amounts recognized as Net Sales, including any deductions accrued pursuant to clauses (a) through (g) of this Section shall be consistent with, and determined from books and records maintained in accordance with GAAP and shall only be deducted once and only to the extent not otherwise deducted from the aggregate amount invoiced. “ Net Sales ” shall not include revenue received by Galena (or any of its Affiliates) from transactions with an Affiliate, where the Product in question will be resold to an independent Third Party distributor, agent or end user by the Affiliate where such revenue received by the Affiliate from such resale is included in Net Sales. For the avoidance of doubt, distribution of the Product in connection with clinical studies and as samples shall not be included in this definition.

1.2.50        “ Orange Book ” means the FDA’s publication entitled “Approved Drug Products with Therapeutic Equivalence Evaluations.”

1.2.51         “ Party ” or “ Parties ” has the meaning set forth in the Preamble to this Agreement.
 
1.2.52        “ Patent Claims ” has the meaning set forth in Section 13.3.

1.2.53        “ Person ” means an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or other legal entity or organization, including a government or political subdivision, department or agency of a government.

1.2.54        “ PharmFilm ” has the meaning set forth in the Recitals of this Agreement.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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1.2.55        “ Product ” means a PharmFilm Drug Product containing the API for the Indication.

1.2.56        “ Product Supply Price ” has the meaning set forth in Section 6.2.

1.2.57        “ Quarterly Royalty Reports ” has the meaning set forth in Section 7.4.

1.2.58        “ Raw Materials ” has the meaning set forth in Section 6.2.

1.2.59        “ Recall ” has the meaning set forth in Section 12.4.1.

1.2.60       “ Recall Expenses ” has the meaning set forth in Section 12.4.1.

1.2.61        “ Recall Objection Notice ” has the meaning set forth in Section 12.4.1.

1.2.62        “ Receiving Party ” has the meaning set forth in Section 9.1.

1.2.63        “ Regulatory Approval ” means any approvals (including applications therefore, supplements and amendments thereto and pricing and reimbursement approvals), licenses, registrations or authorizations of any Regulatory Authority, necessary for the Commercialization, Supply, manufacture, testing, labeling, packaging, or shipping of the Product in the Territory, including the NDA for the Product.

1.2.64        “ Regulatory Authority ” means any national, regional, state, provincial or local regulatory agency, department, bureau, commission, council or other governmental authority in the Territory involved in the granting of approvals (including pricing and reimbursement approvals), licenses, registrations or authorizations for the marketing, sale, manufacturing, testing, labeling, packaging, shipping or supply of drug products, including the FDA.

1.2.65        “ Royalty Period ” means each twelve (12) month period during the Term commencing with the twelve (12) month period starting on the first Calendar Quarter following the First Commercial Sale.
 
1.2.66        “ Specifications ” means the written specifications for, Components, Finished Product, API, Excipients and Raw Materials mutually agreed upon by the Parties including, without limitation, the expiry period of such Components, Product, API, Excipients and Raw Materials as set forth in the NDA for the Product. The Specifications, and any modifications or supplements thereto, as are mutually agreed in writing by the Parties from time to time after the Effective Date and during the Term, are hereby incorporated by reference in this Agreement.
 
1.2.67       “ Supply ” means the manufacture, processing, testing, storing, labeling and packaging (as specified in this Agreement) for sale and delivery of the Product.
 
1.2.68       “ Term ” has the meaning set forth in Section 11.1.
 
1.2.69       “ Territory ” means the United States of America and all of its territories and possessions, including Puerto Rico and the U.S. Virgin Islands.
 
 
 
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1.2.70       “ Third Party ” means any Person other than MSRx and Galena and their respective Affiliates.
 
1.2.71       “ Third Party Claim ” has the meaning set forth in Section 10.3.1.
 
1.2.72      “ Trade Demand ” means the trailing Calendar Quarters average Units of Product ordered from Third Party distributors, agents, contractors or end users for the sale of Product.
 
1.2.73      “ Unit ” shall mean a single dosage strip of the Product (containing either of the Dosage Strengths), in an individual foil pouch, for sample or sale.
 
1.2.74      “ Venture Entity ” shall mean a Person for which its primary business is the investment of capital in other Persons, and shall explicitly exclude any Person which markets, sells, promotes, develops or manufactures Drug Products and any Person for which its primary business is owning or controlling Intellectual Property.
 
1.2.75       “ WAC ” shall mean the Wholesale Acquisition Cost per Unit of Product. WAC is calculated, for any period of determination, by dividing the aggregate amount invoiced by Galena (or any Affiliate, successor, subcontractor, or agent of Galena) to a Third Party distributor, agent, contractor or end user for the sale of Product by the amount of Product supplied under the invoice.
 
1.2.76       “ Zu plenz Trademark ” means collectively the name and logo as identified on Schedule 1.3 attached hereto and made a part hereof.
 
SECTION 2. RIGHTS AND OBLIGATIONS
 
2.1.              Commercialization License . Subject to the terms and conditions of this Agreement, MSRx hereby grants to Galena and its Affiliates, and Galena and its Affiliates accept, an exclusive (even as to MSRx and its Affiliates), royalty-bearing license under MSRx’s IP to Commercialize the Product in the Territory in accordance with the terms of this Agreement. MSRx covenants and agrees with Galena that during the Term MSRx will not grant any license or similar right with respect to the Product to make or have made the Product for sale in the Territory. Galena shall be responsible for the actions of its Affiliates with respect to their activities under the license granted hereunder.
 
2.2.              Manufacturing Exclusivity . Unless otherwise agreed to in writing by both Parties, MSRx shall have the exclusive right to Supply all of the Product Commercialized under this Agreement; provided , however , that MSRx may designate such obligation to one of its Affiliates or a Third Party selected by MSRx. Notwithstanding anything to the contrary contained herein, MSRx’s right to exclusively Supply all Product is conditioned upon it remaining in good standing with Regulatory Authorities, meaning that an FDA inspection does not result in an “Official Action Indicated” (significant objectionable conditions or practices) or further sanction by the FDA and that MSRx retains necessary licenses to operate a manufacturing facility for the Product . In the event such FDA sanctions cause a Supply Interruption, Galena may require MSRx to designate a Third Party manufacturer as outlined under Section 2.4.
 
 
 
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2.3.               Supply Interruption . A “ Supply Interruption ” will be deemed to have occurred and continuing if Galena has ordered Product from MSRx consistent with its obligations under Section 6.5 and that during a period of at least three (3) consecutive months Galena has not received at least [***] percent ([***]%) of those quantities of Product so ordered, which failure results a material disruption in Galena’s ability to Commercialize the Product in the Territory. Notwithstanding the foregoing, no Supply Interruption will be deemed to have occurred if the applicable purchase orders referenced above exceed [***]% of the applicable quantities of Product set forth in the forecast delivered by Galena for the Calendar Quarter immediately preceding such purchase order and MSRx delivers [***]% of the applicable quantities. Galena will provide written notice to MSRx detailing any Supply Interruption and MSRx shall be deemed to have cured such Supply Interruption upon delivery to Galena of quantities of Product covered under such outstanding orders (the “ Supply Cure ”) but only for that amount which does not exceed [***]% of the applicable quantities of Product set forth in the forecast delivered by Galena for the Calendar Quarter immediately preceding such purchase order. A Supply Interruption shall be deemed ongoing until such time as MSRx affects a Supply Cure. A “ Supply Outage ” shall occur if, in any six (6) consecutive Agreement Months, MSRx fails to meet, in at least four (4) of those months or in any two consecutive calendar months, [***] percent ([***]%) of the actual Trade Demand for the Product In the event MSRx has not cured a Supply Outage within thirty (30) days of Galena’s written notification thereof to MSRx, MSRx shall reimburse Galena for lost Net Sales from the date of MSRx’s receipt of such written notification through the date Product is delivered under outstanding purchase orders for the Product allocated to the drug wholesalers utilized by Galena. The foregoing reimbursement will be determined by calculating (x) the difference between the average daily amount of Net Sales of the Product during the six (6) months immediately prior to MSRx’s receipt of Galena’s written notice of such Supply Outage and the actual amount of Net Sales during the Supply Outage, less (y) the royalty payments that would have been due to MSRx under Section 7.2 with respect to such Net Sales. Such reimbursement amount shall be paid quarterly to Galena commencing with the first month following the month in which the Supply Outage occurs, except that the maximum aggregate limit for all such reimbursement in respect of a Supply Outage during the Term shall not under any circumstances exceed [***] Dollars ($[***]), per occurrence with a maximum cap of [***] Dollars ($[***]). Notwithstanding anything to the contrary contained in this Section 2.3, no reimbursement shall be owed to Galena for a Supply Outage where Force Majeure applies or in circumstances where the failure to Supply Product is due to acts or omissions of Galena. The reimbursement described in this Section 2.3 constitutes Galena’s exclusive remedy in the event of a Supply Outage.
 
2.4.              Effect of Supply Interruption . In addition, in the event of a Supply Interruption ongoing for more than three (3) months, Galena shall have the right upon written notice to MSRx to request that MSRx establish and qualify a Third Party manufacturing subcontractor as an alternative supplier of Product (an “ Alternate Supplier ”) at MSRx expense. MSRx agrees to make available such Intellectual Property of MSRx and all know-how that is necessary for the Supply, manufacture, packaging and labeling of the Product by such Alternate Supplier. If at any time before, during, or following the qualification process of such Third Party manufacturer MSRx cures the Supply Interruption, MSRx shall recommence the Supply of all of the Product Commercialized under this Agreement in accordance with this Section 2.4.
 
2.5.              Housemark Licenses .
 
2.5.1          Subject to the terms and conditions of this Agreement, Galena hereby grants to MSRx, and MSRx accepts, a non-exclusive license to use the Galena Housemark in the Territory solely in conjunction with the labeling and specified packaging of Product and solely as such are approved by Galena, which shall be non-transferable except for limited sublicenses to packaging subcontractors for the sole purpose of packaging activities.
 
 
 
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2.5.2           Subject to the terms and conditions of this Agreement, MSRx hereby grants to Galena, and Galena accepts, a non-exclusive, non-transferable license to use the MSRx Housemark in the Territory solely in conjunction with the Product and solely as such are approved by MSRx. The MSRx Housemark shall appear on the label of the Product as set forth on Schedule 1.1.
 
2.6.              Trademark License . Subject to the terms and conditions of this Agreement, MSRx hereby grants to Galena, and Galena accepts, an exclusive license to use the Zuplenz Trademark for purposes related to the Commercialization of the Product in the Territory contemplated by this Agreement.
 
2.7.              Marking of Promotional Materials . Subject to Section 2.5.2, the label for the Product shall be a Galena label in accordance with Galena’s customary practices. All promotional materials, package inserts or outserts and packaging for the Product or samples of Product used during the Term shall be consistent with the label of the Product. Neither Party shall have any rights to the other Party’s trademarks, names or logos for any use other than as contemplated in this Agreement. The packaging for the Product shall indicate that the Product is manufactured for Galena by MSRx.
 
2.8.              MSRx Retained Rights . Any rights of MSRx not expressly granted to Galena under the provisions of this Agreement shall be retained by MSRx. In furtherance of the foregoing and not in limitation thereof, MSRx shall retain the right: (a) to exploit the MSRx IP to develop and Commercialize the Product outside the Territory, without any duty to account to Galena or obtain Galena’s consent for such exploitation, subject to Section 2.1; (b) to carry-out its obligations under this Agreement; and (c) to exploit the MSRx IP for purposes outside of the Product, without any duty to account to Galena or obtain Galena’s consent for such exploitation, subject to Section 2.1.
 
2.9.              Exclusivity . Except as set forth in this Agreement, the Parties agree that they shall not, directly, or indirectly (whether through an Affiliate, Third Party or otherwise), in the Territory during the Term, make, have made, use, develop, import/export, register, file, promote, market, manufacture, distribute, offer to sell, sell or otherwise Commercialize the Product or assist any Third Party in the foregoing.
 
SECTION 3. ALLIANCE MANAGEMENT
 
3.1               Development and Commercialization Committee .
 
3.1.1          The Parties hereby establish a committee which shall provide a forum for open communication between the Parties regarding Product Development and Commercialization activities, and which shall be responsible for such matters related to Development and Commercialization of the Products in the Territory as may be described below. The Development and Commercialization Committee shall consist of such even number of individuals as shall be agreed by the Parties, fifty percent (50%) of whom shall be Galena designees and fifty percent (50%) of whom shall be MSRx designees (the “Committee”). Each Party shall have the right at any time and from time to time to designate a replacement, on a permanent or temporary basis, for any or all of its previously-designated members of the Committee. MSRx shall appoint one of its designees to serve as the Chair of the Committee. The initial Committee shall consist of six (6) members (including the Chair of such Committee), three (3) of whom shall be designated by each Party within ten (10) business days after the Effective Date. The Committee shall meet at least once per Calendar Quarter, and more frequently as mutually agreed by the Parties, on such dates, and at such places and times, as the Parties shall agree; provided, however, that the Parties shall use their Commercially Reasonable Efforts to cause the first meeting of the Committee to occur within thirty (30) days after the Effective Date. The Chair shall send a notice and agenda for each meeting of the Committee to all members of the Committee reasonably in advance of the meeting. The Party hosting any Committee meeting shall appoint one person (who need not be a member of the Committee) to attend the meeting and record the minutes of the meeting in writing. Such minutes shall be circulated to the members of the Committee in a time frame to be agreed upon by the Committee after the meeting and the members agree to review and comment on such minutes in a time frame to be agreed upon by the Committee. The Parties agree to use Commercially Reasonable Efforts to promptly finalize any dispute regarding minutes of any meeting.
 
 
 
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3.1.2        The Committee has no decision-making authority except as expressly set forth herein. All decisions of the Committee shall be made by unanimous vote or unanimous written consent of both Parties, with each Party having, collectively among its respective designees, one vote in all decisions. The members of the Committee shall use Commercially Reasonable Efforts to decide all matters assigned to the Committee under this Agreement or otherwise referred to it by mutual written agreement of the Parties; provided, however, that if the members of the Committee are unable to make a decision by unanimous vote or unanimous written consent within ten (10) days after commencing discussions regarding such decision, then any Committee member may submit it to the Executive Officers of the Parties for resolution. Each Party shall designate an “Executive Officer” of its company as the designee in the event of any dispute that has not been resolved by the Committee in accordance with this Section 3.1.2. The Executive Officer must be at least at the level of an officer of the respective Party. The Executive Officers of the Parties shall discuss in good faith the issue to be resolved and make a decision based on an assessment of the objectives for the applicable Development Plan
 
3.1.3        Purposes and Powers . The principal purpose of the Committee shall be to provide a forum for open communication between the Parties with respect to the Development and Commercialization of the Product in general. The Committee shall make recommendations regarding the overall strategy for the Development Plan, and shall provide advice, guidance, direction and other recommendations with respect to the Development Plan. Subject to the express rights of the Parties as set forth herein, the functions of the Committee shall include:
 
3.1.3.1                  Creating a documented plan encompassing the Development activities required of both Parties as outlined with respect to MSRx in Section 4.2 and with respect to Galena in Section 4.4 which document shall include Development activities, responsible parties, and timelines (the “Development Plan”);
 
3.1.3.2                  Acting as liaison between the Parties to ensure open and regular communication channels, and more particularly to ensure that the Parties are informed of, and have a forum to discuss, the ongoing progress of the Development Plan;
 
3.1.3.3                  Reviewing and recommending (or declining to recommend) proposed amendments to the Development Plan;
 
3.1.3.4                  Reviewing and recommending (or declining to recommend), activities: (a) related to the publication and/or dissemination of the clinical data and reports, including publications, posters, abstracts and presentations; and (b) with respect to other matters that intersect or overlap with Commercialization activities; and
 
 
 
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3.1.3.5                 Performing such other activities and discharging such other responsibilities as may be assigned to the Committee by the Parties pursuant to this Agreement or as may be mutually agreed upon in writing by the Parties from time to time.

3.1.4            Galena agrees to keep the Committee reasonably informed in respect of its Commercialization of the Product in the Territory pursuant to its authority and responsibility set forth in Section 5.1, and in particular Galena shall: (a) provide the Committee with copies of Galena’s annual Product marketing plans on a quarterly basis, information regarding Galena’s Commercialization strategy, and updates regarding the foregoing and the progress of Galena’s Commercialization activities; (b) promptly advise the Committee of any unforeseen material problems or delays encountered since the date of its last report in connection with the Commercialization activities; and (c) provide MSRx as soon as reasonably practicable with such other documentation and information as MSRx’s Committee members may reasonably request in writing from time to time with respect to the status of the Commercialization activities and progress. Galena’s marketing plan will, at a minimum, include details on market share projections, deployment and coverage details, patient/prescriber feedback, and reimbursement rates. Galena will reasonably and in good faith consider any comments and recommendations that the Committee may have with respect to the Commercialization of the Product.
 
3.2             Expenses . Each Party shall be responsible for all travel and related costs and expenses for its members and approved invitees to attend meetings of, and otherwise participate on, the Committee.
 
SECTION 4. DEVELOPMENT; MAINTENANCE OF REGULATORY APPROVALS
 
4.1.             General . MSRx and Galena shall cooperate in the conduct of all Development activities for the Product. Without limiting the foregoing, and as part of their respective responsibilities set forth below, MSRx and Galena shall:
 
4.1.1             Maintain the Product in compliance in all material respects with all requirements of Applicable Law:
 
4.1.2             Maintain records, which shall be complete and accurate in all material respects and shall fully and properly reflect all expenses, in connection with the Development of the Product; and
 
4.1.3             Cooperate and use Commercially Reasonable Efforts to assist in completing any and all clinical studies required as a condition of the continuing Regulatory Approval of the NDA.
 
4.2.              Development Responsibilities of MSRx . MSRx shall have overall responsibility for the performance of all manufacturing-related Development activities, including API and Product specifications, maintaining cGMP processes and procedures in conjunction with manufacturing, packaging, storage and stability of the Product, maintenance of the API DMF, and other manufacturing-related activities. MSRx shall have overall responsibility for the performance of FDA-required Development activities, which may include clinical trial design and conduct, bioanalytical sample shipping, pharmacokinetic and bioequivalent evaluation, data management, statistical evaluation and clinical study report writing. MSRx shall be responsible and pay for all of the costs and expenses incurred in connection with its obligations under this Section 4.2, except as provided for in Section 4.3. MSRx shall supply Galena with all safety data from outside of the Territory and any data and documentation requested by Galena necessary or useful in fulfilling its responsibilities under Section 4.4, and Galena shall supply MSRx with any data and documentation requested by MSRx necessary or useful in fulfilling MSRx’s responsibilities under this Section 4.2.
 
 
 
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4.3.             Clinical Costs . MSRx shall be solely responsible for conducting any post- marketing clinical studies that may be required as a condition of the continuing Regulatory Approval of the NDA for the Product; provided ; however , each Party shall equally share the costs of such clinical studies.
 
4.4.             Development Responsibilities of Galena . Galena shall have overall responsibility for the performance of the following selected Development activities: (a) maintenance of the Product’s approved NDA and preparation and filing of any supplements thereto; (b) preparing and submitting periodic product safety reports; (c) making all required “OPDP” submissions; (d) filing of any post-marketing obligations required by the FDA; and (e) developing and implementing a pharmacovigilance and medical information program. Galena shall be responsible and pay for all of the costs and expenses incurred in connection with its obligations under this Section 4.4, including the annual FDA establishment and product fees for the two (2) SKUs of the Product. MSRx hereby transfers all right, title and interest in and to the NDA to Galena and, as soon as practicable and in no event later than seven (7) Business Days after the Effective Date, MSRx shall send an NDA transfer letter to the FDA acknowledging such transfer. The NDA shall initially be held in the name of Galena; provided , however , the NDA may be transferred to one of Galena’s Affiliates. Any responsibility of Galena under this Section 4.4 shall be Galena’s sole responsibility and MSRx shall be prohibited from conducting such responsibility. MSRx shall have the right to access, use and reference the NDA, including any and all data and other information directly relating thereto solely for the purpose of developing and obtaining Regulatory Approvals to market and sell products outside of the Territory, the Indication and/or the Dosage Strength. Galena agrees to provide similar use of the NDA to MSRx’s partners outside of the Territory as reasonably requested by MSRx. MSRx shall be responsible for all costs and expenses related to its access, use and reference to the NDA as contemplated by this Section 4.4.
 
4.5.             Changes .
 
4.5.1             In the event that Galena is required to change the labeling, packaging or Specifications for the Product pursuant to Applicable Law, or in response to an order or request of a Regulatory Authority or following the transfer of the NDA per this Agreement, Galena shall advise MSRx in writing of any such change, as well as any Supply scheduling adjustments which may result from such change. Galena shall be responsible for the costs of implementing any such change; provided , however , that MSRx shall be solely responsible for all such costs if such change: (a) results from the fault or negligence of MSRx; (b) results from the breach by MSRx of its obligations under this Agreement; or (c) relates to the manufacturing facility generally or to equipment which is not specifically dedicated to the Product (including the use of a secondary or “redundant” manufacturing facility). Upon request, each of the Parties shall provide to the other Party reasonable advance notice of and documentation of such Party’s costs related to such change and permit the other Party to review and audit such costs under the same audit guidelines as set forth in Sections 7.8 and 7.9.
 
 
 
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4.5.2             Subject to Section 2.5.2, Galena shall have the right, upon prior written notice to MSRx, to change the labeling or packaging for the Product. Such changes shall be at Galena’s sole cost and expense (including paying MSRx for the cost of any and all inventory, work-in-process, Raw Materials and packaging materials of MSRx which becomes obsolete or unusable as a result of such request), and the Parties shall agree in good faith on a reasonable timeframe for implementation of such changes, including without limitation, giving effect to the use of the remaining work-in-process, Raw Materials and packaging materials in-process or held in inventory by MSRx prior to effecting such change. MSRx shall not be required to make any such change if: (a) it results in the need for any un-reimbursable capital investment by MSRx; or (b) it results in any un-reimbursable cost increases (including manpower allocations or resources) to MSRx.
 
4.5.3             Both Parties shall have the right to request that a change be made to the Specifications for the Product at its expense and upon prior written notice and approval to the other Party and, if approved, the Parties shall agree on a reasonable timeframe for implementation of such changes. Any changes required to the Specifications of the Product by the FDA that are not a result of a filing or submission elected by Galena shall be the financial responsibility of MSRx. No change shall be made to the Specifications without the mutual agreement of the Parties and neither Party shall be required to make or accept any such change if: (a) it results in the need for any un-reimbursable capital investment by such Party; (b) it results in any un-reimbursable cost increases (including manpower allocations or resources) to such Party; or (c) it requires any changes to the Regulatory Approvals or could have a material adverse effect on the Commercialization of the Product.
 
SECTION 5. COMMERCIALIZATION
 
5.1              Galena Responsibility and Control . Except as otherwise expressly set forth herein, Galena shall have responsibility for all Commercialization activities for the Product in the Territory, including developing strategies and tactics related to the advertising, promotion, pricing, marketing and selling the Product. Galena shall have final decision-making authority and primary responsibility for all Commercialization strategies, plans and activities regarding the Product in the Territory. Galena shall comply and shall require all of its Third Party agents and contractors, if any, to comply, with all Applicable Laws in Commercializing the Product in accordance with this Agreement.
 
5.2              Specific Commercialization Rights and Obligations of Galena . Galena shall use Commercially Reasonable Efforts to Commercialize the Product in a manner consistent with the then-current Commercialization plan. Subject to any conditions or limitations set forth herein, it shall be Galena’s sole right and responsibility to: (a) develop advertising and promotional materials related to the Product; (b) book sales for the Product; (c) handle all returns of the Product; (d) handle all aspects of order processing, invoicing and collection of receivables for the Product; (e) collect data regarding sales to hospitals and other end users of the Product; (f) monitor inventory levels of the Product; (g) provide first line customer support and pharmacovigilance; (h) warehouse the Product; and (i) determine the prices for the Product and any discounts and rebates that may be offered thereto, including decisions relating to customer allowances and credits. Galena shall determine the Commercialization plan(s) and Commercialization activities, and the execution thereof shall be within Galena’s sole decision- making authority and control.
 
5.3              Product Launch and Market Coverage . Provided there are no regulatory or legal disputes or issues related to the Commercialization of the Product and provided Galena has on hand enough approved and saleable Product to successfully launch the Commercialization of the Product consistent with the forecasts delivered by Galena in accordance with Section 6.5.1 then Galena will use Commercially Reasonable Efforts to begin its Commercialization of the Product on or before December 31, 2014. Until such time as (i) the previous rolling twelve (12) months net sales for Galena exceeds [***] million dollars ($[***]) or (ii) there is a Competing Product approved by the FDA and be placed into the market for sale, Galena will maintain a minimum Average Field Force of [***] ([***]) Field Personnel with a minimum of [***] percent ([***]%) of a sales representative’s commission plan based on the Product.
 
 
 
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5.4              Commercialization and Marketing Expenses . Except as expressly set forth in this Agreement, Galena shall be responsible and pay for [***] percent ([***]%) of the Marketing Expenses for the Product in the Territory including the costs and expenses incurred in connection with Galena’s responsibilities under this Section 5.
 
SECTION 6. MANUFACTURING
 
6.1.             Supply Obligations . Subject to the terms and conditions hereof (including Section 2.2), during the Term, MSRx shall exclusively Supply Galena and Galena’s Affiliates with, and Galena shall exclusively purchase from MSRx, all of Galena’s and its Affiliates’ requirements for the Product in the Territory during the Term, pursuant to purchase orders delivered by Galena or its Affiliate to MSRx in accordance with Section 6.4. MSRx shall Supply the Product in Units (single dosage strips packaged according to Product and/or sample Specifications and bulk packed for shipment as agreed by the Parties) in accordance with the terms and conditions of this Agreement, Applicable Law, the Specifications and cGMP. MSRx shall release the Product to Galena in accordance with this Section 6.
 
6.2.              Supply Price . With respect to Product supplied by MSRx to Galena under this Agreement: (a) MSRx shall supply quantities of each Unit of the Product to Galena at a cost per Unit of $[***] (the “ Product Supply Price ”); (b) MSRx shall supply each such dose individually packaged in a foil sachet; and (c) MSRx will supply Product in soldier-packed boxes of no less than [***] Units per box.
 
6.3.              Raw Materials . MSRx shall have responsibility for the procurement, manufacture, vendor qualification and compliance, quality control, processing, testing, storage, treatment and handling of all packaging, API and other raw materials, chemicals, work-in- process and other materials used for Supply (collectively, “ Raw Materials ”). MSRx shall be solely responsible for disposing of all Raw Materials and wastes arising from its performance hereunder and for performance of its obligations hereunder in accordance with Applicable Law in effect at the time and place of manufacture of the Product.
 
6.4.              Quality Assurance and Quality Control; Expiration of Product . All quality control processes and procedures relating to the Product shall be the sole cost and responsibility of MSRx. MSRx shall conduct quality control testing of Product prior to shipment in accordance with the Product’s NDA and Applicable Law. MSRx shall prepare and retain records pertaining to such testing as required by Applicable Law and MSRx’s standard operating procedures. In no event shall the Product Supplied by MSRx hereunder have an expiration date of less than thirty (30) months from the date it is released for shipment to Galena (or Galena’s subcontractor).
 
6.5.              Forecasts, Order and Delivery of Products .
 
6.5.1                 In order to assist MSRx in planning production. Galena shall deliver to MSRx in advance of each Calendar Quarter a supply forecast that includes the quantities of Product by Dosage Strength (including samples) required by Galena (and/or its Affiliates, subcontractors and distributors) by month for the next twelve (12) months. The first such forecast for each Product by Dosage Strength shall be delivered by Galena to MSRx no later than thirty (30) days after the Effective Date of the Agreement and thereafter on the first Business Day of each February, May, August and November of each calendar year during the Term for the immediately succeeding calendar quarter. MSRx shall, no later than ten (10) days after receipt of each such forecast, notify Galena in writing of any objections or prospective problems in meeting Galena’s forecasted requirements. If no communication is forthcoming then the forecast is presumed to be accepted.
 
 
 
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6.5.2                 Galena shall furnish to MSRx binding purchase orders on a monthly basis. Each such purchase order shall designate the quantity of Product by Dosage Strength ordered and the requested date of delivery of the Product to Galena or to Galena’s Affiliates or any Third Party designated by Galena. Galena shall furnish purchase orders by the 5 th Business Day of each month and a minimum of sixty (60) days prior to the requested delivery (release for shipment) date. Each purchase order shall be in whole batch sizes based on the 115kg batch size utilized by MSRx (i.e., soldier-packed boxes of no less than [***] Units per box), subject to the proviso in Section 6.2(c). Galena may split purchase orders for a batch on a 50/50 basis between any two of the following: Dosage Strengths, samples, and commercial supply. The Parties agree that no provision of any purchase order, invoice or of any confirmation or acknowledgement or any other documentation or forms submitted by either Party to the other Party shall be controlling to the extent it sets forth any terms or conditions that are additional to, or in conflict or inconsistent with, the terms or conditions of this Agreement.
 
6.5.3                 MSRx shall ensure its ability to Supply Product covered under binding purchase orders furnished by Galena in accordance with the terms of this Agreement. MSRx and Galena will consider a purchase order filled as long as no less than [***]% and no more than [***]% of the quantities are delivered against the purchase order. Galena agrees to accept delivery of up to [***]% of the requested purchase order.
 
6.5.4                MSRx shall deliver Product set forth in each purchase order Ex Works (Incoterms 2010 edition, published by the International Chamber of Commerce) at the applicable manufacturing facility to Galena’s designated carrier as specified by Galena in the applicable purchase order or otherwise notified in writing to MSRx by Galena. Galena reserves the right to designate the carrier for shipment from the manufacturing facility.

6.6.            Invoice . MSRx shall invoice Galena at the Product Supply Price for all quantities of Product delivered in accordance herewith. Each invoice shall be delivered concurrently with each shipment of Product and be accompanied by a Certificate of Analysis, Certificate of Compliance and any other documentation required by the applicable Regulatory Authorities or by Applicable Law to Commercialize the Product in the Territory. Payments shall be made in accordance with Section 7.4, and shall be due within sixty (60) days after receipt of the invoice with respect thereto, subject to the procedure for rejected shipments set forth in Section 6.7 for a period of six (6) months from the First Commercial Sale. Thereafter, payments shall be due within thirty (30) days after receipt of the invoice.
 
6.7.            Product Not in Compliance with Purchase Order . Within thirty (30) days after receipt of the Product or stability failure for the Product, as applicable. Galena or its agent shall perform an examination of the Certificates of Analysis and other documentation, if any, provided with each shipment of Product, and shall determine whether such Product meets the requirements of the applicable purchase order. In the event that Galena determines, within such thirty (30) day period, that any Product Supplied by MSRx does not conform to the applicable purchase order, Galena shall give MSRx written notice thereof and the reason(s) therefore within thirty (30) days after receipt thereof. If Galena does not submit written notice of rejection within such thirty (30) day period, such Product shall be deemed accepted by Galena. If MSRx agrees that a rejection is justified, MSRx shall have the right, and if such right is exercised shall not be deemed a default hereunder: (a) to correct such shipment to conform to the applicable purchase order; or (b) grant Galena a credit on that portion of the shipment that is nonconforming.
 
 
 
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6.8.            Inspection by Galena . At any time during the Term of this Agreement and upon not less than ten (10) Business Days’ prior written notice, MSRx shall permit Galena to inspect any facility (including any subcontractors’ facilities) where the Supply of the Product is carried out in order to assess MSRx’s compliance with cGMP and other Applicable Law, and to discuss any related issues with MSRx’s management personnel.
 
6.9.            Inspections by Regulatory Authorities . MSRx shall allow representatives of any Regulatory Authority to inspect the relevant parts of the facility where the Supply of Product is carried out and to inspect the lot, batch and other manufacturing records to verify compliance with cGMP and other Applicable Law and practices and shall promptly notify Galena of the scheduling of any such inspection relating to Supply. MSRx shall promptly send to Galena a copy of any reports, citations, or warning letters received by MSRx in connection with an inspection by a Regulatory Authority to the extent such documents relate to or affect Supply.
 
6.10.            Quality Agreement . Within thirty (30) days from the Effective Date, the Parties will enter into an agreement that details the quality assurance obligations of each Party (the “ Quality Agreement ”). MSRx will provide Galena with a draft copy of the Quality Agreement prior to the Effective Date of the Agreement. Notwithstanding the foregoing, neither the Quality Agreement, nor the absence of a Quality Agreement, shall affect the rights and obligations of the Parties under this Agreement. The Parties shall amend the Quality Agreement from time to time as the Parties deem necessary. All Product supplied to Galena shall be supplied in accordance with the Quality Agreement. The Quality Agreement, as may be amended from time to time, is hereby incorporated by reference into and made part of this Agreement.
 
SECTION 7. PAYMENTS AND REPORTS
 
7.1             Milestone Payments .
 
7.1.1         One-time non-refundable payments will be due from Galena to MSRx in consideration of each of the following milestone events:
 
7.1.1.1       Following the completion of the transfer to Galena of the NDA, as contemplated by Section 4.4, hereof, Galena shall pay to MSRx the sum of (i) Five Million Dollars ($5,000,000) and (ii) the [***] for the [***] ([***]) SKUs of the Product for Calendar Year 2014 ($[***]) (the “ First Milestone ”); provided that such payments in respect of the First Milestone shall be payable in two installments, as follows: (x) the first installment of $[***] shall be payable in cash upon its release pursuant to the terms of the Escrow Agreement, and (y) the second installment of [***] Dollars ($[***]) shall be payable in any combination of cash or shares of Galena Common Stock, as described in Section 7.2, within ninety (90) days following Galena’s receipt of written confirmation of such NDA transfer.
 
 
 
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7.1.1.2        The earlier of either (i) within thirty (30) days of Galena’s achievement of [***] for the Product in [***]% of the commercially insured lives in the United States of America with the [***], as defined by Fingertip Formulary or (ii) by December 31, 2014, Galena shall pay the sum of $[***] (the “ Second Milestone ”).
 
7.1.1.3        Within thirty (30) days from the date that MSRx pays all applicable issue fee(s) relating to the notice of allowance issued by the United Statement Patent and Trademark Office covering the issuance of a U.S. patent with composition claims covering the Product that extend the term beyond 2028, Galena shall pay to MSRx the sum of Two Hundred Fifty Thousand Dollars ($250,000) (the “ Third Milestone ”).
 
7.1.2            Commencing on the Effective Date, a one-time non-refundable payment will be due from Galena to MSRx in consideration of Galena’s achievement of the following Net Sales milestones (each, a “ Net Sales Milestone ,” and together, the “ Net Sales Milestones ”) achieved during the Term:
 
Net Sales Milestone Event
Milestone Payment
Annual Net Sales reach $[***]
$[***]
Annual Net Sales reach $[***]
$[***]
Annual Net Sales reach $[***]
$[***]
Annual Net Sales reach $[***]
$[***]
Annual Net Sales reach $[***]
$[***]
Annual Net Sales reach $[***]
$[***]
 
 
For each Net Sales Milestone achieved, Galena shall notify MSRx in writing and promptly remit payment to MSRx against the applicable Net Sales Milestone in timing consistent with the Quarterly Royalty Reports described in Section 7.4 below. For the avoidance of doubt, in no event shall more than one Net Sales Milestone be payable in any one calendar year, but in such case the Net Sales Milestone with the highest payment shall be deemed earned and Galena shall have no further obligation with respect to any such lesser Net Sales Milestones.
 
 
 
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7.2                Form of First Milestone Payment . Galena may, in its sole discretion, satisfy the second installment of the payment relating to the First Milestone (i.e., the installment described in clause (y) of Section 7.1.1.1) in cash or by the issuance of shares of Galena Common Stock to MSRx or its designee, or any combination thereof; provided, however, that Galena’s right to issue shares of Galena Common Stock shall be conditioned upon such shares being registered for resale under the Securities Act of 1933, as amended (the “ Securities Act ”) at the time of issuance. If Galena elects to issue shares to satisfy such installment, the number of shares of Galena Common Stock to be issued shall be determined by dividing the amount of such installment to be satisfied in Galena Common Stock by the closing sale price (during the regular trading day) of one share of Galena Common Stock as of the 89 th day following the achievement of the First Milestone, as reported on the NASDAQ Global Market. Notwithstanding anything to the contrary contained herein, under no circumstances shall Galena be permitted to satisfy any such Milestone payment with shares of Galena Common Stock unless such issuance of Galena Common Stock is permitted under Rule 5635(a) of the NASDAQ Listing Rules (or any successor rule thereto). In the event Galena elects to issue shares of Galena Common stock in satisfaction of the First Milestone, it shall undertake to file a registration statement under the Securities Act on Form S-3 (or such other appropriate form as Galena is then eligible to use) covering the resale of such shares by MSRx (the “Registration Statement”). Following the effective date of the Registration Statement, Galena shall use commercially reasonable efforts to maintain the effectiveness of the Registration Statement until the earlier of (A) such time as the shares of Galena Common Stock covered thereby have been resold pursuant to the Registration Statement or are eligible to be resold by MSRx pursuant to Rule 144 promulgated under the Securities Act, or (B) the effective time of a merger, consolidation, tender offer or other similar business combination transaction pursuant to which all of the outstanding shares of Galena Common Stock are purchased or otherwise acquired by a third party pursuant to such merger, consolidation, tender offer or other business combination transaction. MSRx agrees to provide Galena with such information regarding itself, its beneficial ownership of Galena Common Stock, and the intended method of disposition of the shares subject to the Registration Statement as shall be reasonably required by Galena to effect such registration. Galena shall bear all expenses relating to the preparation and filing of the Registration Statement and all expenses relating to the sale of the Galena Common Stock covered thereby by MSRx, including underwriting discounts and commissions and any professional fees or costs of accounting, financial or legal advisors to MSRx, up to a maximum aggregate of [***] Dollars ($ [***] ).
 
7.3                Royalties .
 
7.3.1        As consideration for the license and other rights granted to Galena under this Agreement, during the Term and in addition to any payments set forth in Sections 6 and 7.1, Galena shall pay to MSRx a royalty payment based upon the actual U.S. dollar value of Net Sales, except as expressly provided herein, of [***] ([***]%) percent of Annual Net Sales; provided, however, that in the event any Third Party Commercializes a Competing Product, such royalty rate shall be reduced to [***] percent ([***]%) beginning with the first Calendar Quarter such Competing Product is marketed and sold in the Territory and continuing until there is no Competing Product in the Territory at which time the royalty payment will revert back to [***] ([***]%) percent. For avoidance of doubt, Galena shall not pay MSRx a royalty payment for any Product in the distribution channel prior to the Effective Date. Further, Galena shall not pay a royalty payment to MSRx on any orders for the Product received by Galena from Cardinal Health, AmerisourceBergen, and McKesson for the purposes of return or replacement of any Product in distribution channel as of the Effective Date that is set to expire.
 
7.3.2        The target minimum royalty in each Royalty Period shall be:
 
Year
Target Royalty
Year 1
[***]
Year 2
[***]
Year 3 and beyond
$[***]
 
 
 
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If for any Royalty Period the total royalties payable to MSRx pursuant to this Section 7.3 do not meet or exceed such target minimum royalty then, Galena may, at its sole discretion, within forty-five (45) days after the end of such Royalty Period pay to MSRx the difference between: (a) such target minimum royalty and (b) all royalty payments made to MSRx pursuant to this Section 7.3 for such Royalty Period. Pursuant to this section, should a Competing Product or generic-like product become available utilizing the API with a film strip technology, no Minimum Royalty shall be due on an annualized basis from such time that such other product receives approval from the FDA. If Galena does not make such payment within such forty-five (45) day timeframe, then MSRx shall have for a period of thirty (30) days an option to terminate this Agreement upon forty-five (45) days prior written notice to Galena.
 
7.4            Royalty Reports and Payments . During the Term, Galena shall make quarterly royalty payment reports (“ Quarterly Royalty Reports ”) to MSRx on or before the sixtieth (60 th ) day following the end of the Calendar Quarters ending on March 31, June 30, September 30, and December 31. Each Quarterly Royalty Report shall cover the most recently completed Calendar Quarter and shall show: (a) the gross and Net Sales of the Product during the most recently completed Calendar Quarter including reasonable detail with respect to the calculation of Net Sales such as units sold, discounts, credits and other components in the calculation of Net Sales; and (b) the royalties, in U.S. dollars, payable with respect to such Net Sales. Each Quarterly Royalty Report shall be accompanied by the payment shown as due on such Quarterly Royalty Report.
 
7.5             Manner of Payment . All sums due under this Agreement shall be payable in U.S. dollars by bank wire in immediately available funds to such bank account(s) as MSRx shall designate. Galena shall notify MSRx as to the date and amount of any such wire transfer to MSRx at least two (2) Business Days prior to such transfer. All amounts greater than thirty (30) days past due to MSRx hereunder shall bear interest at the rate equal to [***] percent ( [***] %) per month or at the highest rate permitted by New Jersey law, whichever is less.
 
7.6            Bartering Prohibited . Galena and its Affiliates, and subcontractors shall not solicit or accept any bartered goods or services in exchange for the sale or transfer of the Product.
 
7.7            Taxes and Withholding . Except with respect to the calculation of Net Sales, all payments under this Agreement will be made without any deduction or withholding for or on account of any tax, duties, levies, or other charges unless such deduction or withholding is required by Applicable Law. If Galena is so required to deduct or withhold. Galena will: (a) notify MSRx of such requirement in writing; (b) pay to the relevant authorities the full amount required to be deducted or withheld promptly upon the earlier of determining that such deduction or withholding is required; and (c) forward to MSRx an official receipt (or certified copy) or other documentation reasonably acceptable to MSRx evidencing such payment to such authorities.
 
7.8            Accounting . All financial terms and standards defined or used in this Agreement for sales or activities occurring in the Territory shall be governed by and determined in accordance with GAAP, including the calculation of Net Sales and royalties due MSRx hereunder; provided that when the actual results become known relative to any accrued amount, any difference between the actual results and the accrual is reported and accounted for in the next payment due hereunder (subject to customary processing periods). To the extent that the difference between such accruals and the actual results has led to an underpayment, Galena shall pay MSRx the amount of such underpayment on the next date payment is due to MSRx hereunder. To the extent that the difference between such accruals and the actual results has led to an overpayment to MSRx, Galena may set-off such overpayments against subsequent payments to be made to MSRx; additionally, if any overpayments remain upon the expiration or termination of this Agreement, MSRx shall refund such overpayments to Galena within thirty (30) days of receiving an invoice for such overpayment together with applicable supporting documentation.
 
 
 
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7.9                Record Keeping; Audits . Galena and its Affiliates shall keep books and accounts of record in connection with Net Sales of the Product in sufficient detail to permit accurate determination of all figures necessary for verification of royalties to be paid hereunder. Galena and its Affiliates shall maintain such records for a period of at least three (3) years after the end of the Calendar Quarter in which they were generated; provided , however , that if any records are in dispute and Galena has received written notice from MSRx of the records which are in dispute, Galena and its Affiliates shall keep such records until the later of one (1) year or until such dispute is resolved. No more than once every calendar year, upon reasonable notice to Galena, an independent auditor designated by MSRx shall have the right to examine Galena’s (or its Affiliates’ or subcontractors’) records to determine the correctness of the amount of royalties paid to MSRx under the terms of this Agreement. All costs and expenses of such auditor incurred in connection with performing any such audit shall be paid by MSRx unless such audit discloses an underpayment of at least [***] percent ( [***] %), in which case Galena shall bear such costs and expenses.
 
7.10               Underpayments and Overpayments . If an audit conducted pursuant to Section 7.10 reveals that additional royalties were due to MSRx under this Agreement, then Galena shall pay to MSRx the additional royalties within ten (10) days of the date Galena receives written notice of such underpayment, together with interest thereon from the date such royalty payments were due in the first instance at the rate equal to [***] percent ( [***] %) per month or at the highest rate permitted by New Jersey law, whichever is less. If an audit conducted pursuant to Section 7.10 reveals that MSRx was paid royalties in excess of those royalties due to MSRx under this Agreement, then Galena shall deduct such amount from the next royalty payment due MSRx under this Agreement.
 
SECTION 8. REPRESENTATIONS, WARRANTIES AND COVENANTS
 
8.1               Representations, Warranties and Covenants of Each Party . Each Party hereby represents, warrants and covenants to the other Party as follows:
 
8.1.1         Such Party: (a) is duly formed and in good standing under the laws of the jurisdiction of its formation; (b) has the power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; and (c) has taken all necessary action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of such Party and constitutes a legal, valid and binding obligation of such Party and is enforceable against it in accordance with its terms subject to the effects of bankruptcy, insolvency or other laws of general application affecting the enforcement of creditor rights and judicial principles affecting the availability of specific performance and general principles of equity, whether enforceability is considered a proceeding at law or equity.
 
8.1.2        All necessary consents, approvals and authorizations of all Regulatory- Authorities and other Persons required to be obtained by such Party in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder have been obtained.
 
 
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8.1.3         The execution and delivery of this Agreement, the performance of such Party’s obligations hereunder, and any actions or omissions of such Party related to the activities contemplated hereunder and the circumstances surrounding this Agreement: (a) do not and will not conflict with or violate any Applicable Law or any provision of the articles of incorporation, bylaws or other governing charter documents of such Party; and (b) do not and will not conflict with, violate, or breach, or constitute a default or require any consent under, any contractual obligation or court or administrative order by which such Party is bound.
 
8.1.4      Each Party agrees not to engage in any action that is in violation or inconsistent with the terms and conditions of this Agreement or that interferes with the consummation of the transactions contemplated under this Agreement.
 
8.2                Additional MSRx Representations, Warranties and Covenants . MSRx represents, warrants and covenants to Galena as follows:
 
8.2.1        MSRx exclusively owns the MSRx IP and shall continue to do so during the Term. MSRx has not received any written notice of any Third Party Claim alleging infringement or misappropriation of any Intellectual Property of any Third Party related to the MSRx IP or the Product, and, to the knowledge of the management of MSRx, without independent investigation, there are no circumstances or conditions in existence as of the Effective Date that would reasonably be expected to give rise to a claim that the MSRx IP or the Product infringes any Intellectual Property of any Third Party or that MSRx has misappropriated any Intellectual Property of any Third Party related to the MSRx IP or the Product.
 
8.2.2        MSRx and its Affiliates have the right to grant the licenses granted to Galena herein and MSRx owns all right, title and interest in and to all of the MSRx IP and the NDA free and clear of any Liens as of the Effective Date. Without limiting the foregoing, MSRx has not granted any licenses to any Third Party that would prohibit the license granted to Galena under Section 2 of this Agreement.
 
8.2.3        Neither MSRx nor any of its Affiliates is a party to or otherwise bound by any oral or written contract or agreement that will result in any Third Party obtaining any interest in, or that would give to any Third Party any right to assert any claim in or with respect to, any of Galena’s rights under this Agreement.
 
8.2.4        During the Term, MSRx shall comply with and maintain in force all licenses, consents, permits and authorization and maintain all facilities which may be required with respect to the Supply of Product and its performance of its obligations hereunder.
 
8.2.5        During the Term MSRx shall comply with and maintain in force all licenses, consents, permits and authorization which may be required with respect to the facility where the Supply of the Product is carried out and its performance of its obligations hereunder, including without limitation, licenses and permits issued or required by all Regulatory Authorities and those required in relation to the generation, storage, treatment, transport, possession, handling and disposal of any waste and MSRx shall Supply Product in compliance with all such licenses, consents, permits and authorization.
 
8.2.6        MSRx shall not during the Term in the Territory: (a) Supply (either directly or indirectly) or arrange for the supply of Product or any Competing Product to any Affiliate of MSRx or any Third Party or for MSRx’s own account; or (b) manufacture Product or any Completing Product for the account of any Third Party besides Galena or its Affiliates or their permitted Third Party designees for distribution in the Territory.
 
 
 
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8.2.7        The Product shall: (a) be Supplied in accordance with the Specifications, Quality Agreement, cGMP and applicable current FDA guidelines; (b) be in conformity with the applicable Specifications, applicable Regulatory Approval, Applicable Law and the Certificate of Analysis; and (c) be in dosage form labeled, packaged and tested for commercial sale in the Territory and title to such Product shall pass to Galena as provided herein free and clear of any security interest, lien or other encumbrance.
 
8.2.8        The Product as delivered to Galena in accordance with Section 6 above shall not contain any product or article that would cause the Product to be adulterated or misbranded within the meaning of the Act.
 
8.2.9        To the best of MSRx’s knowledge: (a) it has not and will not use during the Term services of any persons debarred under 21 U.S.C. § 335(a) or (b) in any capacity associated with or related to the manufacture of the Product; and (b) neither MSRx nor any of its officers or employees has been convicted of a felony under United States law for conduct relating to the development or approval, including the process for development or approval, of any drug product, new drug application or abbreviated new drug application and neither MSRx nor any of its officers or employees has been convicted of a felony under United States law for conduct relating to the regulation of any product under the Act.
 
8.3.             Additional Galena Representations, Warranties and Covenants . Galena further represents, warrants and covenants to MSRx that:
 
8.3.1        It has utilized its own scientific, marketing and distribution expertise and experience to analyze and evaluate both the scientific and commercial value of the Product and, subject to the representations, warranties and covenants of MSRx contained in this Agreement, has solely relied on such analysis and evaluations in deciding to enter into this Agreement.
 
8.3.2         Neither Galena nor any of its Affiliates is a party to or otherwise bound by any oral or written contract or agreement that will result in any Third Party obtaining any interest in, or that would give to any Third Party any right to assert any claim in or with respect to, any of MSRx’s rights under this Agreement.
 
8.3.3        During the Term, Galena shall comply with and maintain in force all licenses, consents, permits and authorizations necessary to perform its obligations under this Agreement.
 
8.3.4         During the Term, Galena shall not directly or indirectly, and shall cause its Affiliates not to directly or indirectly, develop, market and/or sell Competing Product, or enter into any agreement or arrangement or otherwise engage in any activities relating to the foregoing.
 
 
 
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8.4.             Disclaimer . EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH HEREIN, NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A WARRANTY OR REPRESENTATION BY MSRX THAT: (A) THE PRODUCT IS OR WILL BE FREE FROM INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADEMARKS, INDUSTRIAL DESIGN OR OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY; OR (B) REGARDING THE EFFECTIVENESS, VALUE, SAFETY, NON-TOXICITY OF THE PRODUCT OR ANY INFORMATION OR RESULTS PROVIDED BY MSRX PURSUANT TO THIS AGREEMENT. EXCEPT AS SET FORTH HEREIN, MSRX HEREBY DISCLAIMS, AND GALENA HEREBY WAIVES, RELEASES AND RENOUNCES, ALL WARRANTIES, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT IN THE PRODUCT PROVIDED HEREUNDER OR THE API INCLUDED THEREIN, INCLUDING, BUT NOT LIMITED TO, (I) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR (II) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE.
 
SECTION 9. CONFIDENTIAL INFORMATION
 
9.1.             General . Pursuant to the terms of this Agreement, each of MSRx and Galena (in such capacity, the “ Disclosing Party ”) has disclosed and will be disclosing to the other Party, and to the officers, directors, employees, agents and/or representatives of each (in such capacity, the “ Receiving Party ”) certain secret, confidential or proprietary data, Intellectual Property and related information, including, without limitation, operating methods and procedures, marketing, manufacturing, distribution and sales methods and systems, sales figures, pricing policies and price lists and other business information (“ Confidential Information ”). Without limiting the foregoing, it is acknowledged that the MSRx IP shall constitute the Confidential Information of MSRx (subject to Section 9.2) and the Quarterly Royalty Payments shall constitute the Confidential Information of Galena for purposes of this Agreement. The Receiving Party shall make no use of any Confidential Information of the Disclosing Party except in the exercise of its rights and the performance of its obligations set forth in this Agreement. The Receiving Party: (a) shall keep and hold as confidential, and shall cause its officers, directors, employees, agents and representatives to keep and hold as confidential, all Confidential Information of the Disclosing Party; and (b) shall not disclose, and shall cause its officers, directors, employees, agents and representatives not to disclose, any Confidential Information of the Disclosing Party. Confidential Information disclosed by the Disclosing Party shall remain the sole and absolute property of the Disclosing Party, subject to the rights granted in this Agreement or Applicable Law.
 
9.2.             Exceptions . The above restrictions set forth in Section 9.1 on the use and disclosure of Confidential Information shall not apply to any information which: (a) is already known to the Receiving Party at the time of disclosure by the Disclosing Party, as demonstrated by competent proof (other than as a result of prior disclosure under any agreement between the Parties with respect to confidentiality); (b) is or becomes generally known or available to the public other than through any act or omission of the Receiving Party in breach of this Agreement; (c) is acquired by the Receiving Party from a Third Party who is not directly or indirectly under an obligation of confidentiality to the Disclosing Party with respect to same, or (iv) is developed independently by the Receiving Party without the use, direct or indirect, of the Disclosing Party’s Confidential Information. In addition, nothing in this Section 9 shall be interpreted to limit the ability of either Party to disclose its own Confidential Information to any other Person on such terms and subject to such conditions as it deems advisable or appropriate.
 
9.3.             Permitted Disclosures . It shall not be a breach of Section 9.1 if a Receiving Party discloses Confidential Information of a Disclosing Party: (a) pursuant to Applicable Law, including securities laws applicable to a public company, to any Regulatory Authority or the listing standards or agreements of any national or international securities exchange or The NASDAQ Stock Market or other governmental authority; or (b) in a judicial, administrative or arbitration proceeding to enforce such Party’s rights under this Agreement; provided , however , that the Receiving Party (i) provides the Disclosing Party with as much advance written notice as possible of the required disclosure, (ii) reasonably cooperates with the Disclosing Party in any attempt to prevent, limit or seek confidential treatment for the disclosure and (iii) discloses only the minimum amount of Confidential Information necessary for compliance.
 
 
 
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9.4.             Confidential Terms . Each Party acknowledges and agrees that the terms and conditions of this Agreement shall be considered Confidential Information of each Party and shall be treated accordingly. Notwithstanding the foregoing, each Party acknowledges and agrees that the other may be required to disclose some or all of the information included in this Agreement in order to comply with its obligations under securities laws or the listing standards or agreements of any national or international securities exchange or The NASDAQ Stock Market, and hereby consents to such disclosure to the extent deemed advisable or appropriate by its respective counsel (but only after consulting with the other to the extent practicable). The Parties may also disclose the existence of this Agreement and terms thereof to their directors, investors, officers, employees, attorneys, accountants and other advisers on a need to know basis and may, upon obtaining a written confidentiality agreement, further disclose the existence and terms of this Agreement to any Third Party to whom it may be relevant in connection with financings, acquisitions and similar transactions.
 
9.5.             E quitable Remedies . Each Party specifically recognizes that any breach by it of this Section 9 may cause irreparable injury to the other Party and that actual damages may be difficult to ascertain, and in any event, may be inadequate. Accordingly (and without limiting the availability of legal or equitable, including injunctive, remedies under any other provisions of this Agreement), each Party agrees that in the event of any such breach, the other Party shall be entitled to seek injunctive relief and such other legal and equitable remedies as may be available.
 
SECTION 10. INDEMNIFICATION; LIMITATION OF LIABILITY
 
10.1.             Indemnification by Galena . Galena shall defend, indemnify and hold harmless MSRx and its Affiliates and each of their respective officers, directors, shareholders, employees, successors and assigns from and against all Third Party Claims, and all associated Losses, to the extent arising out of: (a) the gross negligence or willful misconduct of Galena or any of its Affiliates or subcontractors in performing any of Galena’s obligations under this Agreement; or (b) a material breach by Galena or any of its Affiliates or subcontractors of any of Galena’s representations, warranties, covenants or agreements under this Agreement; provided , however , that in all cases referred to in this Section 10.1, Galena shall not be liable to indemnify MSRx for any Losses of MSRx to the extent that such Losses of MSRx were caused by: (i) the gross negligence or willful misconduct or intentional wrongdoing of MSRx or any of its Affiliates; (ii) any breach by MSRx or any of its Affiliates of MSRx’s representations, warranties, covenants or agreements under this Agreement; or (iii) matters for which MSRx provides indemnity pursuant to Section 10.2(c).
 
10.2.             Indemnification by MSRx . MSRx shall defend, indemnify and hold harmless Galena and its Affiliates and each of their respective officers, directors, shareholders, employees, successors and assigns from and against all Third Party Claims, and all associated Losses, to the extent arising out of: (a) MSRx’s gross negligence or willful misconduct in performing any of its obligations under this Agreement; (b) a material breach by MSRx of any of its representations, warranties, covenants or agreements under this Agreement; or (c) a claim or demand by a Third Party that the Product in the Territory during the Term infringes on the Intellectual Property or other proprietary rights of such Third Party; provided , however , that in all cases referred to in this Section 10.2, MSRx shall not be liable to indemnify Galena for any Losses of Galena to the extent that such Losses of Galena were caused by (i) the gross negligence or willful misconduct or intentional wrongdoing of Galena or any of its Affiliates or subcontractors or (ii) any breach by Galena or any of its Affiliates of Galena’s representations, warranties, covenants or agreements under this Agreement.
 
 
 
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10.3.            Procedure for Indemnification .
 
10.3.1       Notice . In the case of a Third Party Claim or demand other than Patent Claims (which are subject to the procedures set forth in Section 13.3) (“ Third Party Claim ”) made by any Person who is not a Party of this Agreement (or an Affiliate thereof) as to which a Party (the “ Indemnitor ”) may be obligated to provide indemnification pursuant to this Agreement, such Party seeking indemnification hereunder (“ Indemnitee ”) will notify the Indemnitor in writing of the Third Party Claim (and specifying in reasonable detail the factual basis for the Third Party Claim and to the extent known, the amount of the Third Party Claim) reasonably promptly after becoming aware of such Third Party Claim; provided , however , that failure to give such notification will not affect the indemnification provided hereunder except to the extent the Indemnitor shall have been actually materially prejudiced as a result of such failure.
 
10.3.2       Defense of Claim . If a Third Party Claim is made against an Indemnitee, the Indemnitor will be entitled, within thirty (30) days after receipt of written notice from the Indemnitee of the commencement or assertion of any such Third Party Claim, to assume the defense thereof by providing written notice to Indemnitee of its intention to assume the defense of such Third Party Claims within such thirty (30) day period (at the expense of the Indemnitor) with counsel selected by the Indemnitor and reasonably satisfactory to the Indemnitee for so long as the Indemnitor is conducting a good faith and diligent defense. Should the Indemnitor so elect to assume the defense of a Third Party Claim, the Indemnitor will not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided , however , that if under applicable standards of professional conduct a conflict of interest exists between the Indemnitor and the Indemnitee in respect of such claim, such Indemnitee shall have the right to employ separate counsel to represent such Indemnitee with respect to the matters as to which a conflict of interest exists and in that event the reasonable fees and expenses of such separate counsel shall be paid by such Indemnitor; provided , further , that the Indemnitor shall only be responsible for the reasonable fees and expenses of one separate counsel for such Indemnitee. If the Indemnitor assumes the defense of any Third Party Claim, the Indemnitee shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnitor. If the Indemnitor assumes the defense of any Third Party Claim, the Indemnitor will promptly supply to the Indemnitee copies of all correspondence and documents relating to or in connection with such Third Party Claim and keep the Indemnitee informed of developments relating to or in connection with such Third Party Claim, as may be reasonably requested by the Indemnitee (including, without limitation, providing to the Indemnitee on reasonable request updates and summaries as to the status thereof). If the Indemnitor chooses to defend a Third Party Claim, all Indemnitees shall reasonably cooperate with the Indemnitor in the defense thereof (such cooperation to be at the expense, including reasonable legal fees and expenses, of the Indemnitor). If the Indemnitor does not elect to assume control by written acknowledgement of the defense of any Third Party Claim within the thirty (30) day period set forth above, or if such good faith and diligent defense is not being or ceases to be conducted by the Indemnitor, the Indemnitee shall have the right, at the expense of the Indemnitor, after three (3) Business Days’ written notice to the Indemnitor of its intent to do so, to undertake the defense of the Third Party Claim for the account of the Indemnitor (with counsel selected by the Indemnitee), and to compromise or settle such Third Party Claim, exercising reasonable business judgment.
 
 
 
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10.3.3            Settlement of Claims . If the Indemnitor acknowledges in writing its obligation to indemnify the Indemnitee for a Third Party Claim, the Indemnitee will agree to any settlement, compromise or discharge of such Third Party Claim that the Indemnitor may recommend that by its terms obligates the Indemnitor to pay the full amount of Losses (whether through settlement or otherwise) in connection with such Third Party Claim and unconditionally and irrevocably releases the Indemnitee completely from all Losses in connection with such Third Party Claim; provided , however , that, without the Indemnitee’s prior written consent, the Indemnitor shall not consent to any settlement, compromise or discharge (including, without limitation, the consent to entry of any judgment), that provides for injunctive or other nonmonetary relief affecting the Indemnitee.

10.4.          Assumption of Defense . Notwithstanding anything to the contrary contained herein, an Indemnitee shall be entitled to assume the defense of any Third Party Claim with respect to the Indemnitee upon written notice to the Indemnitor pursuant to this Section 10.4, in which case, the Indemnitor shall be relieved of liability under Section 10.1 or 10.2, as applicable, solely for such Third Party Claim and related Losses.
 
10.5.          Insurance . Immediately upon First Commercial Sale, during the Term and for a period of five (5) years after the termination or expiration of this Agreement, each Party shall obtain and/or maintain, respectively, at its sole cost and expense, product liability insurance (including any self-insured arrangements) in amounts, respectively, which are reasonable and customary in the U.S. pharmaceutical industry for companies of comparable size and activities at the respective place of business of each Party but in no event less than [***] dollars ($[***]). All insurance policies reflecting such insurance shall be written on a “‘per occurrence” or “claims made” basis with an insurance company rated at least A-3 by Best’s rating guide. Each of the Parties and their designees who have an insurable interest shall be added as an additional insured on the other Party’s product liability insurance policy. If requested, each Party shall provide the other with a certificate of insurance and shall keep such policy current. Each such insurance policy shall provide for at least thirty (30) calendar days prior written notice to the other Party of the cancellation or any substantial modification of the terms of coverage. Such product liability insurance (or self-insured arrangements) shall insure against all liability, including without limitation personal injury, physical injury, or property damage arising out of the manufacture, sale, distribution, or marketing of the Product. Each Party also agrees to waive, and will require its insurers to waive, all rights of subrogation against the other Party, and its directors, officers, employees, and agents on all the foregoing coverages.  Each Party shall provide written proof of the existence of such insurance to the other Party upon written request.
 
10.6.          Limitation of Liability . EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR TO THE EXTENT CAUSED BY GROSS NEGLIGENCE OR INTENTIONAL ACTS OR OMISSIONS, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY OF ITS AFFILIATES FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST PROFITS, BUSINESS OR GOODWILL) SUFFERED OR INCURRED BY SUCH OTHER PARTY OR ITS AFFILIATES IN CONNECTION WITH A BREACH OR ALLEGED BREACH OF THIS AGREEMENT. THE FOREGOING SENTENCE SHALL NOT APPLY IN CASES OF FRAUD AND SHALL NOT LIMIT THE OBLIGATIONS OF EITHER PARTY TO INDEMNIFY THE OTHER PARTY FROM AND AGAINST THIRD PARTY CLAIMS UNDER THIS SECTION 10.
 
 
 
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SECTION 11. TERM AND TERMINATION
 
11.1.          Term . This Agreement shall commence as of the Effective Date and, unless earlier terminated or renewed in accordance with the terms hereof, shall expire on the tenth (10 th ) anniversary of the Effective Date (together with any renewal term, the “ Term ”). Thereafter this Agreement may be renewed on an annual basis by Galena by delivery written notice to MSRx not less than one hundred twenty (120) days prior to expiration of the initial Term or any renewal Term, as applicable.
 
11.2.           Termination . In addition to any other provision of this Agreement expressly providing for termination of this Agreement:
 
11.2.1       this Agreement may be terminated by either Party: (a) immediately upon written notice if the other Party shall file in any court or agency, pursuant to any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization (except for the purposes of a bona fide amalgamation or other reorganization) or for an arrangement or for the appointment of a receiver or trustee of the other Party or of its assets, or if the other Party shall be served with an involuntary petition against it, filed in any insolvency proceeding, and such petition shall not be dismissed within sixty (60) days after the filing thereof, or if the other Party shall propose or be a party to any dissolution or liquidation, or if the other Party shall make an assignment for the benefit of its creditors; or (b) if the other Party commits any material misrepresentation or breach of any of its covenants, obligations, representations or warranties under this Agreement to which such action to terminate applies and, in the case of a breach which is capable of remedy, such Party fails to remedy the same within ninety (90) days after receipt of a written notice describing the breach and requiring it to be so remedied (or, in the case of Galena’s covenants and obligations under Section 5.3, Galena fails to remedy the same within sixty (60) days after receipt of a written notice describing the breach and requiring it to be so remedied);
 
11.2.2       this Agreement may be terminated by MSRx upon thirty (30) days prior written notice to Galena in the event that Galena fails to promptly pay any milestone as and when due pursuant to Section 7.1, or any royalty as and when due pursuant to Section 7.3.1, unless Galena makes such payment then due within thirty (30) days following receipt of such written termination notice from MSRx;
 
11.2.3       this Agreement may be terminated by MSRx as contemplated by Section 7.3.2 unless Galena makes such payment then due under 7.3.2 within thirty (30) days following receipt of such written termination notice from MSRx;
 
11.2.4       this Agreement may be terminated by MSRx upon ninety (90) days prior written notice to Galena in the event that Galena fails to use its Commercially Reasonable Efforts to maintain the NDA for the Product during the Term and Galena fails to remedy such failure within ninety (90) days of receipt of such notice;
 
 
 
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11.2.5       this Agreement may terminated by Galena upon thirty (30) days written notice if, on or prior to thirty (30) days after the Effective Date, any Third Party initiates any judicial or other governmental proceeding (including bringing any motion, appeal or otherwise seeking any remedy in any ongoing judicial or governmental proceeding) commenced under the Bankruptcy Code objecting to or attempting to void or render unenforceable this Agreement, or which otherwise delays or hinders Galena’s ability to Commercialize the Product; or
 
11.2.6       this Agreement may be terminated by Galena for any reason upon one hundred eighty (180) days written notice any time following January 1, 2016, provided that Galena has paid or does pay MSRx all sums then due and payable and all Pediatric Research Equity Act costs then committed and assignable to Galena prior to the actual termination date.
 
11.3.           No Waiver . The right of Galena or MSRx to terminate this Agreement, as herein above provided, shall not be affected in any way by Galena’s or MSRx’s respective waiver or failure to take action with respect to any prior default or breach.
 
11.4.           Effects of Termination .
 
11.4.1       Effect of Termination Generally . On the expiration or earlier termination of this Agreement for any reason, except as otherwise expressly provided herein, all rights and obligations of each Party hereunder shall cease.
 
11.4.2       Disposition and Transfer of Inventory upon Termination; Royalties Due Thereon Not Affected By Termination . On the expiration or earlier termination of this Agreement by MSRx due to Galena’s material breach of this Agreement: (a) all unpaid royalties for Product sold as of the effective date of termination shall remain due and payable as scheduled; (b) at MSRx’s option, MSRx shall complete all work-in-process and Galena shall purchase at the Product Supply Price under this Agreement, all remaining inventory of the Product and, at cost, all Raw Materials relating thereto in MSRx’s possession or control, and MSRx shall use all Commercially Reasonable Efforts to mitigate the cost thereof to Galena and to consult with Galena in connection with such attempts to mitigate; (c) Galena shall have the right to sell out such remaining inventory of Product for a period of up to eighteen (18) months; and (d) Galena shall pay to MSRx a royalty, in the same amount and calculated in accordance with the terms set forth in Section 7.3 and subject to all of the provisions of Sections 7.4 through and including 7.10, on each sale of remaining inventory of Product by Galena and/or its Affiliates when and as such Product is sold.
 
11.4.3       Effect of Certain Instances of Termination . In the event this Agreement is terminated by MSRx pursuant to Sections 11.2.2 through and including 11.2.4, Galena hereby assigns all of its rights, title and interests in and to the NDA for the Product as filed with the FDA (or the data and information that would otherwise be in the NDA for the Product if such NDA has not been filed, to the extent such data and information is in Galena’s possession and control) to MSRx and Galena agrees to cooperate with MSRx and to execute and deliver any and all documents reasonably necessary to perfect its rights to the NDA for the Product. In the event this Agreement is terminated by Galena in accordance with Section 11.2.5 on or prior to ninety (90) days after the Effective Date, the full amount of the payment made by Galena in respect of the First Milestone shall be returned to Galena within ten (10) Business Days of the effective date of such termination, provided, however, that to the extent such payment was made by Galena through the issuance of shares of Galena Common Stock in accordance with Section 7.2, MSRx shall either return such shares to Galena for cancellation or, at MSRx’s sole option, return an amount in cash equal to the value of such shares as determined in accordance with Section 7.2.
 
 
 
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11.4.4       Accrued Rights . Termination, relinquishment or expiration of this Agreement for any reason shall be without prejudice to any right which shall have accrued to the benefit of either Party prior to such termination, relinquishment or expiration including damages arising from any breach under this Agreement. Termination, relinquishment or expiration of this Agreement shall not relieve either Party from any obligation which is expressly or by implication intended to survive such termination, relinquishment or expiration of this Agreement and shall not affect or prejudice any provision of this Agreement which is expressly or by implication provided to come into effect on, or continue in effect after, such termination, relinquishment or expiration. Remedies for breaches under this Agreement shall also survive any termination, relinquishment or expiration of this Agreement.
 
11.4.5       Survival . The following Sections of this Agreement, as well as any other provisions in this Agreement which specifically state they will survive termination or expiration of this Agreement, shall survive termination of this Agreement for any reason: Section 1, Section 2.1 through Section 2.5 inclusive (provided that the license granted in Section 2.1 shall be non-exclusive and all such sections shall survive for the sole purpose of selling out remaining inventory of Product as set forth in Section 11.4.2(c)), Section 2.6, Section 6.5 with respect to any unpaid reimbursements in respect of a Supply Interruption), Section 7.1 with respect to unpaid Milestone payments, Section 7.3 with respect to unpaid royalty payments and royalty payments due under Section 11.4.2 or 11.4.3 above, Sections 7.4 through and including Section 7.10 with respect to royalty payments due after such termination or expiration, Section 8.4, Section 9, Section 10, Section 11.3, this Section 11.4, Section 12.3, Section 13.2 and 13.3 with respect to pending claims thereunder, and Section 14.
 
11.4.6       Return of Confidential Information . Within thirty (30) days of any expiration or termination of this Agreement: (a) Galena shall cease to use and shall deliver to MSRx, upon written request, all Confidential Information of MSRx, except for any documents or records that Galena is required to retain by Applicable Law; and (b) MSRx shall cease to use and shall deliver to Galena, upon written request, all Confidential Information of Galena except for any documents or records that MSRx is required to retain by Applicable Law.
 
SECTION 12. REGULATORY MATTERS
 
12.1.           Regulatory Activities in the Territory . MSRx and Galena shall use Commercially Reasonable Efforts, in good faith, to conduct such research and development activities, including clinical trials, necessary to maintain Regulatory Approval for the Product in the Territory and shall cooperate to take all such reasonable actions as shall be necessary or appropriate to prepare and file all documentation with the Regulatory Authorities for the maintenance of Regulatory Approval of the Product in the Territory and to furnish such information to the Regulatory Authorities in connection therewith.
 
12.2.           Communications and Meetings with Governmental Authorities . Communications with Governmental Authorities . Subject to the provisions of this Section 12. Galena shall be solely responsible for interfacing, corresponding and meeting with all Regulatory Authorities for the NDA. At all times during the Term, Galena shall be responsible, at its expense, for reporting any and all Serious Adverse Drug Events and Adverse Drug Experiences to applicable Regulatory Authorities. Immediately upon receipt of any contact with or communication from any Regulatory Authority relating to the Product or becoming aware of any Serious Adverse Drug Event or Adverse Drug Experience in the Territory, each of the Parties shall forward a copy or description of the same to the other Party and shall use Commercially Reasonable Efforts to respond to all reasonable inquiries from the other Party relating thereto. Both Parties shall use Commercially Reasonable Efforts to cooperate to provide all reasonable assistance and take all actions which are necessary to comply with any Applicable Law.
 
 
 
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12.2.2       MSRx’s Participation in Meetings with Regulatory Authorities . MSRx, to the extent not prohibited by the Regulatory Authority, shall be allowed to attend all meetings between representatives of Galena and/or its agents and Regulatory Authorities relating to the Product. Galena shall provide MSRx as soon as reasonably possible (but in any event at least five (5) Business Days before any such meeting) with copies of all documents, correspondence and other materials in its possession which are relevant to the matters to be addressed at any such meeting. Galena shall also provide MSRx with prompt access to all exchanges of correspondence with a Governmental Authority with respect to the Product.
 
12.2.3        Notification by Galena of any Regulatory Actions . Galena shall as soon as reasonably possible (but in any event at least three (3) Business Days), after receipt of any inspections, proposed regulatory actions, investigations or requests by any Regulatory Authority with respect to the Supply of Product in the Territory, as well as any corrective or other actions with Regulatory Authorities initiated by Galena with respect thereto, notify MSRx in reasonable detail with respect thereto and will provide MSRx with copies of all related documentation. MSRx shall have the right to attend all material preparation, internal caucus, and debriefing sessions related to meetings or discussions, whether in person, by teleconference or otherwise, between Galena or its agents with respect to the Supply of Product in the Territory, and Galena shall provide MSRx with reasonable prior written notice of any such sessions and copies of meeting minutes with respect thereto.
 
12.2.4       Approval of Labeling and Promotional Materials . Subject to the provisions of this Agreement, Galena shall timely submit to the applicable Regulatory Authorities and obtain any necessary Regulatory Authority approvals of any promotional materials, label, labeling, package inserts or outserts, monographs and packaging.
 
12.3.           Regulatory Information .
 
12.3.1       Assistance . Subject to the terms of this Section 12. in the Territory, each Party agrees to use Commercially Reasonable Efforts to provide the other with all reasonable assistance and take all actions reasonably requested by the other Party that are necessary or desirable to enable the other Party to comply with any Applicable Law.
12.3.2       Notice . Each Party or its respective representative shall provide the other Party with notice, as soon as reasonably practicable to enable the other Party to comply in all material respects with Applicable Law, of notification or other information which it receives (directly or indirectly) from, any Regulatory Authority (and providing, as soon as reasonably possible, copies of any associated written requests) that: (a) raises any material concerns regarding the safety or efficacy of the Product; (b) indicates or suggests a Third Party Claim arising in connection with the Product; or (c) is reasonably likely to lead to a recall, market withdrawal or field correction of, field alert report or comparable report with respect to the Product. Information that shall be disclosed pursuant to this Section 12.3.2 shall include, but not be limited to:
 
(i)               inspections by a Regulatory Authority of manufacturing, distribution or other related facilities concerning the Product;
 
 
 
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(ii)              inquiries by a Regulatory Authority concerning clinical investigation activities (including, without limitation, inquiries regarding investigators, clinical monitoring organizations and other related Parties) with respect to the Product;
 
(iii)             any communication from a Regulatory Authority involving the manufacture, sale, promotion or distribution of the Product, or any other Regulatory Authority reviews or inquiries relating to any event set forth in this Section 12.3.2(c);
 
(iv)             any receipt of a FDA Warning Letter relating to the
 
Product;
 
(v)              any initiation of any Regulatory Authority investigation, detention, seizure or injunction concerning the Product; and
 
(vi)             any other regulatory action (e.g., proposed labeling or other registrational dossier changes and recalls) which would affect the Product.
 
12.4.            Recalls or Other Corrective Action .
 
12.4.1        Notice of Action . As soon as reasonably possible, Galena shall notify MSRx of any actions to be taken by Galena or its Affiliates, subcontractors or agents with respect to any recall or market withdrawal or field correction of, field alert report or comparable report or any matter which is suspected or likely to be the subject of a complaint which may require a recall, market correction or similar action relating to the Product in the Territory (a “ Recall ”) prior to (but in any event at least ten (10) Business Days prior to) any such action so as to permit MSRx a reasonable opportunity to consult with Galena with respect thereto. Galena agrees to consider MSRx’s consultation in good faith; provided , however , nothing in this Section 12.4 is intended to limit Galena’s ability to recall, withdraw or take any other corrective action relating to the Product. At Galena’s reasonably written request and cost (except as set forth in this Section 12.4), MSRx shall provide reasonable assistance to Galena in conducting such Recall. The cost of any Recall, including, the costs of notifying customers and the costs associated with the shipment of the Product from customers and all reasonable credits extended to customers as a result thereof, and the costs of replacing the Product (“ Recall Expenses ”), occasioned or required as part of a general Recall of the products of a Party, shall be borne as provided in the following sentences. Any Recall Expenses caused by MSRx or the failure of MSRx to Supply the Product conforming to the Specifications or applicable Regulatory Approvals or other breach of this Agreement by MSRx shall be borne by MSRx, except to the extent such Recall Expenses are caused in whole or in part by Galena of any of its Affiliates or licensees, or subcontractors. Any Recall Expenses caused by Galena or the failure of Galena to Commercialize the Product conforming to the applicable Regulatory Approvals or other breach of this Agreement by Galena shall be borne by Galena, except to the extent caused in whole or in part by MSRx or any of its Affiliates. In the event that either Party disputes that it is the cause of a Recall, the Parties agree to attempt to resolve such dispute within ten (10) days after receipt of a notice of objection regarding such recall (the “ Recall Objection Notice ”). If Galena and MSRx fail within ten (10) days after delivery of the Recall Objection Notice to agree as to the Party that is the cause of such Recall, the issue, and as applicable, any representative samples of the Product, shall be submitted to a mutually acceptable independent laboratory or consultant (if not a laboratory analysis issue) for analysis or review. The results of such evaluation shall be binding upon the Parties. The Party that is determined to have been incorrect in its determination of the Party that is the cause of such Recall shall pay [***] percent ( [***] %) of the Recall Expenses including the cost of any such evaluation. If the fees of the independent laboratory or consultant are due in advance, Galena and MSRx shall each pay [***] percent ( [***] %) of such fees; provided , however , that promptly after the independent laboratory or consultant completes its evaluation, the Party that was incorrect in its determination shall reimburse the other Party for its [***] percent ( [***] %) share of such fees.
 
 
 
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12.4.2      Recall Information Received . Each Party shall, as soon as reasonably practicable, notify the other Party of any recall, market withdrawal or field correction of, field alert report or comparable report or complaint with respect to the Product and supply all information received by it relating thereto in sufficient detail to allow the Parties to comply with Applicable Law.
 
12.5.           Events Affecting Integrity or Reputation . During the Term, the Parties shall notify each other immediately of any circumstances of which they are aware and which could materially impair the integrity and reputation of the Product or if a Party is threatened by the unlawful activity of any Third Party in relation to the Product, which circumstances shall include, by way of illustration, deliberate tampering with or contamination of the Product by any Third Party as a means of extorting payment from the Parties or another Third Party. In any such circumstances, the Parties shall use Commercially Reasonable Efforts to limit any damage to the Parties and/or to the Product.
 
SECTION 13. INTELLECTUAL PROPERTY
 
13.1.            Patent Prosecution and Maintenance .
 
13.1.1       MSRx IP . MSRx shall be responsible for the preparation, filing, prosecution and maintenance of the MSRx IP, including the MSRx Patents and the Zuplenz Trademark. Additionally, MSRx shall use Commercially Reasonable Efforts to list the MSRx Patents in the Orange Book. The cost of such preparation, filing, prosecution and maintenance of the MSRx IP shall be borne by MSRx. MSRx shall consider in good faith the requests and suggestions of Galena with respect to strategies for prosecution and maintenance of MSRx IP in the Territory and, as applicable, revisions to correspondence with the U.S. Patent and Trademark Office.
 
13.1.2       Cooperation of the Parties . Each Party agrees to cooperate fully in the preparation, filing, prosecution and maintenance of any registered MSRx IP under this Agreement and in the obtaining and maintenance of any extensions, supplementary protection certificates and the like with respect to any registered MSRx IP.
 
13.2.            Infringement by Third Parties . The Parties shall promptly notify the other in writing of any alleged or threatened infringement of any MSRx Patent of which they become aware. In the event a Party brings or desires to bring an infringement action in accordance with this Section 13.2, the other Party shall use its best efforts to cooperate fully, including, if required to bring such action, the furnishing of a power of attorney to bring suit in the other Party’s name and/or being named as a party in such suit and as necessary, becoming a client of the other Party’s legal counsel and agreeing that such legal counsel will act solely under the instruction of the other Party and will sign a waiver with such legal counsel to that effect and the Party bringing the action shall keep the other Party and/or their designated legal counsel reasonably informed as to the progress of such action. Except as expressly set forth in this Agreement, any recovery related to the Product which is realized by either Party as a result of such litigation, after reimbursement of any litigation expenses of MSRx and Galena, shall be shared equally by the Parties.
 
 
 
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
13.3.            Infringement of Third Party Rights . Each Party shall promptly notify the other in writing of any allegation by a Third Party that the activity of either of the Parties or their Affiliates or subcontractor or sublicense in connection with the Development, Supply or Commercialization of the Product infringes the issued patent rights (or would infringe the claims, if issued, of a pending patent application) of any Third Party in the Territory (“ Patent Claims ”). In the event of a litigation in accordance with this Section 13.3, the Party not controlling such litigation shall use its best efforts to cooperate fully, including, if required for the purposes of any cross claim or counterclaim, the furnishing of a power of attorney to bring suit in the other Party’s name and/or being named as a party in such suit and as necessary, becoming a client of the other Party’s legal counsel and agreeing that such legal counsel will act solely under the instruction of the other Party and will sign a waiver with such legal counsel to that effect and the Party bringing the action shall keep the other Party and/or their designated legal counsel reasonably informed as to the progress of such action. Neither Party shall enter into any settlement of any litigation, without the prior written consent of the other, such consent not to be unreasonably withheld, delayed or conditioned.
 
SECTION 14. MISCELLANEOUS
 
14.1.            Independent Contractor . Neither MSRx nor Galena, together in each case with their respective employees or representatives, are under any circumstances to be considered as employees, partners, joint venturers, agents or representatives of the other by virtue of this Agreement, and neither shall have the authority or power to bind the other or contract in the other’s name.
 
14.2.            Registration and Filing of this Agreement . To the extent, if any, that either Party concludes in good faith that it or the other Party is required to file or register this Agreement or a notification thereof with any Regulatory Authority including, without limitation, the U.S. Securities and Exchange Commission or the U.S. Federal Trade Commission, in accordance with Applicable Law, such Party shall inform the other Party thereof. Should both Parties jointly agree in writing that either of them is required to submit or obtain any such filing, registration or notification, they shall cooperate, each at its own expense, in such filing, registration or notification and shall execute all documents reasonably required in connection therewith. In such filing, registration or notification, the Parties shall request confidential treatment of sensitive provisions of this Agreement, to the extent permitted by Applicable Law. The Parties shall promptly inform each other as to the activities or inquiries of any such Regulatory Authority relating to this Agreement, and shall reasonably cooperate to respond to any request for further information therefrom on a timely basis.
 
14.3.            Notices . Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed given when so delivered in person, by overnight courier, by facsimile transmission (with receipt confirmed by automatic transmission report) or two (2) Business Days after being sent by registered or certified mail (postage prepaid, return receipt requested), as follows:
 
If to Galena:
Galena Biopharma, Inc.
4640 SW Macadam Avenue Suite 270
Portland, OR 97239
Attention: Chief Executive Officer
Facsimile No.: 503.400.6611
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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With a copy to :
 
 
If to MSRx:    
MonoSol Rx, LLC
30 Technology Drive
Warren, New Jersey 07059
Attention: Vice President, Business Development
Facsimile No.: 908.561.1209

With a copy to :
 
Day Pitney LLP
One Jefferson Road
Parsippany, New Jersey 07054
Attention: Lori J. Braender, Esq.
Facsimile No.: 973.966.1015
 
 
Either Party may by notice given in accordance with this Section 14.3 to the other Party designate another address or person for receipt of notices hereunder.
 
14.4.            Binding Effect; No Assignment . This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns (other than pursuant to the foregoing Section 14.4(b)). Neither MSRx nor Galena may assign any of its rights or delegate any of its liabilities or obligations hereunder without the prior written consent of the other Party, except that without the prior consent of the other Party: (a) either Party may assign this Agreement to any purchaser of all or a substantial part of its assets or business related to the Product; and (b) either Party may assign this Agreement and/or its rights and obligations under this Agreement, in whole or in part, to any of its Affiliates and may assign any of its rights to payments of royalties or any other amounts due under this Agreement to any of its Affiliates or any Third Party. Any purported assignment or transfer in violation of this Section will be void ab initio and of no force or effect.
 
14.5.            No Implied Waivers; Rights Cumulative . No failure on the part of MSRx or Galena to exercise and no delay in exercising any right, power, remedy or privilege under this Agreement, or provided by statute or at law or in equity or otherwise, including the right or power to terminate this Agreement, shall impair, prejudice or constitute a waiver of any such right, power, remedy or privilege or be construed as a waiver of any breach of this Agreement or as an acquiescence therein, nor shall any single or partial exercise of any such right, power, remedy or privilege preclude any other or further exercise thereof or the exercise of any other right, power, remedy or privilege.
 
14.6.            Severability . If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable. The Parties further agree to replace such invalid or unenforceable provision of this Agreement with a valid and enforceable provision that shall achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable provision.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
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14.7.            Force Majeure . Neither Party shall be liable for delay in delivery or nonperformance (except for any obligation for the payment of money), in whole or in part, nor shall the other Party have the right to terminate this Agreement except as otherwise specifically provided in this Section 14.7, to the extent that such delay in delivery or nonperformance is caused by any event reasonably beyond the control of such Party and without the fault or negligence of the such Party, including fires, floods, embargoes, shortages, epidemics, quarantines, war, acts of war (whether war be declared or not), terrorism, insurrections, riots, civil commotion, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any Regulatory Authority (a “ Force Majeure ”); provided , however , that the Party affected by such a condition shall, within ten (10) days of its occurrence, give written notice to the other Party stating the nature of the condition, its anticipated duration and any action being taken to avoid or minimize its effect. The suspension of performance shall be of no greater scope and no longer duration than is reasonably required and the nonperforming Party shall use its Commercially Reasonable Efforts to remedy its inability to perform; provided , however , that in the event the suspension of performance continues for a period of one hundred eighty (180) consecutive calendar days after the date of the occurrence, and such failure to perform would constitute a material breach of this Agreement in the absence of such force majeure event, the nonaffected Party may terminate this Agreement immediately by written notice to the other Party.
 
14.8.            Amendment . This Agreement may not be amended except by an instrument signed by each of the Parties hereto.
 
14.9.            Rules of Construction . The Parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or ruling of construction providing that ambiguities in an agreement or other document shall be construed against the Party drafting such agreement or document.
 
14.10.            Publication . The Parties acknowledge that each of Galena and MSRx intends to issue press releases and other public statement disclosing the existence of or relating to this Agreement, and each agrees to provide the other Party a copy of such release and statement and to obtain the express written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed; provided , however , that neither Party shall be prevented from complying with any duty of disclosure it may have pursuant to Applicable Law, including securities laws applicable to a public company.
 
14.11.            Expenses . Except as expressly set forth herein, each Party shall bear all fees and expenses incurred by such Party in connection with, relating to or arising out of the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including attorneys’, accountants’ and other professional fees and expenses.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
14.12.             Governing Law; Submission to Jurisdiction; Waiver . This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without regarding to its conflict of laws principles. In the event any action shall be brought to enforce or interpret the terms of this Agreement, the Parties agree that such action will be brought in the State or Federal courts located in Delaware. Each of MSRx and Galena hereby irrevocably submits with regard to any action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of MSRx and Galena hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement: (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to lawfully serve process; (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise); and (c) to the fullest extent permitted by Applicable Law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper, and (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
 
14.13.            Entire Agreement . This Agreement contains the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior agreements, written or oral, between the Parties.
 
14.14.            Third Party Beneficiaries . None of the provisions of this Agreement, express or implied, is intended to be or shall be for the benefit of or enforceable by any Person (including, without limitation, any creditor of either Party hereto) other than Galena and MSRx and their respective successors and permitted assigns. No such Person shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any debt, liability or obligation (or otherwise) against either Party hereto.
 
14.15.            Rights in Bankruptcy . The Parties acknowledge that all rights and licenses granted under or pursuant to any Section of this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11 of the United States Code and other similar foreign laws (collectively, the “Bankruptcy Code”), licenses of rights to be “intellectual property” as defined under the Bankruptcy Code or such foreign laws. If a case is commenced during the Term by or against MSRx or its Affiliates under a Bankruptcy Code then, unless and until this Agreement is rejected as provided in such Bankruptcy Code, MSRx (in any capacity, including debtor-in-possession) and its successors and assigns (including, without limitation, a trustee) shall perform all of the obligations provided in this Agreement to be performed by such Party. If a Bankruptcy Code case is commenced during the Term by or against MSRx, this Agreement is rejected as provided in the Bankruptcy Code and Galena elects to retain its rights hereunder as provided in the Bankruptcy Code, then MSRx, subject to the Bankruptcy Code case (in any capacity, including debtor-in-possession) and its successors and assigns (including, without limitation, a Title 11 trustee), shall provide to Galena copies of all information necessary for Galena to prosecute, maintain and enjoy its license under the MSRx IP under the terms of this Agreement held by MSRx and such successors and assigns promptly upon Galena’s written request therefor. All rights, powers and remedies of Galena, as a licensee hereunder, provided herein are in addition to and not in substitution for any and all other rights, powers and remedies now or hereafter existing at law or in equity (including, without limitation, the Bankruptcy Code) in the event of the commencement of a Bankruptcy Code case by or against MSRx.
 
14.16.            Counterparts; Signatures . This Agreement may be executed in multiple counterparts, all of which, when executed, shall be deemed to be an original and all of which together shall constitute one and the same document. Signatures provided by facsimile or e-mail transmission shall be deemed to be original signatures.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
[Signature Page Follows]

 
 
 
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives, effective as of the Effective Date.
 
 
 
GALENA BIOPHARMA, INC.
 
 
 
By: /s/ Mark J. Ahn, Ph. D.
Name: Mark J. Ahn, Ph. D.
Title: President & Chief Executive Officer
 

 
 
MONOSOL RX, LLC
 
 
 
By: /s/ Keith Kendall
Name: Keith Kendall
Title: Co-President & Chief Operating Officer
 
 

Exhibit 4.18
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
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LICENSE AND SUPPLY TRANSFER AGREEMENT

THIS LICENSE AND SUPPLY TRANSFER AGREEMENT (this “ Transfer Agreement ”) is entered into as of December 16, 2015 (the “ Effective Date ”) by and between MonoSol Rx, LLC (“ MonoSol ”) and Galena Biopharma, Inc. (“ Galena ”).

RECITALS:

WHEREAS , MonoSol and Galena are parties to that certain License and Supply Agreement dated July 17, 2014 (the “ Agreement ”); and

WHEREAS , Galena announced on November 9, 2015 its intent to divest its commercial sales business; and

WHEREAS , Galena has requested limited relief from Section 5.3 of the Agreement in order to facilitate a potential transaction transferring the Agreement to Midatech Pharma plc or a subsidiary thereof (the “ Transfer ”); and

WHEREAS, MonoSol has requested consideration for the limited relief requested by Galena; and

WHEREAS , the parties desire to amend the Agreement in certain respects, contingent upon timely completion of the Transfer, in the manner described herein:

NOW, THEREFORE , in consideration of the respective agreements contained herein, and for valuable consideration and receipt and adequacy of which is hereby acknowledged, Galena and MonoSol agree as follows:

1.1            Defined Terms .   Each capitalized term used herein that is not otherwise defined herein shall mean as such term is defined in Agreement.
 
1.2            Residual Liabilities . Each of the parties to the Transfer Agreement acknowledges to the other party hereto that, as of the date of this Transfer Agreement, it has not made a claim against the other party to this Transfer Agreement for breach under the Agreement nor is any such claim pending.
 
 
 
 
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
1.3            Replacement of Section 5.3 of Agreement after the Transfer .   Contingent upon  the timely completion of the Transfer, Section 5.3 of the Agreement shall thereupon be replaced in its entirety as follows:
 
“5.3            Market Coverage .  Galena will maintain a minimum Average Field Force of [***] Field Personnel with a minimum of [***] of a sales representative’s commission plan based on the Product.”
 
1.4            Replacement of Section 1.2.45 of the Agreement after the Transfer .  Contingent upon the timely completion of the Transfer, Section 1.2.45 of the Agreement shall thereupon be replaced in its entirety as follows:
 
“1.2.45  “MSRx IP” means any and all Intellectual Property, including, but not limited to, each of (i) United States Patent Number 8,580,830 and (ii) United States Patent Number 9,095,577, including any divisions, continuations, reissues and reexaminations based upon any patent application with common priority thereto, and Regulatory Approvals owned or controlled by MSRx or its Affiliates and which is useful or necessary to Supply or Commercialize the Product.”
 
1.5            Time Period for Execution .  This Transfer Agreement shall be in effect for fourteen (14) calendar days after the Effective Date (the “ Transfer Deadline ”).  Unless the Transfer shall have been consummated prior to the Transfer Deadline, this Transfer Agreement shall be void and of no further force and effect.
 
1.6            Outstanding Invoices .  Galena shall promptly pay all outstanding invoices due to MonoSol upon execution of this Transfer Agreement, including the following oustanding invoices: (1) invoice #INV001122 dated September 29, 2015 for $131,616.00, (2) invoice #INV001132 dated November 4, 2015 for $2,943.68 and (3) invoice #INV001135  dated November 2, 2015 for $2,167.50.
 
1.7            Compensation .  Galena will provide MonoSol with a true and complete execution copy of its Transfer agreement with the transferee (including without limitation, all exhibits, schedules, other attachments and ancillary agreements relating thereto) immediately following execution and delivery thereof by the parties thereto.  Galena shall pay MonoSol (1) Nine Hundred Thousand Dollars and No Cents ($900,000) immediately upon transferee paying Galena the upfront payment set forth in the Transfer agreement and (2) [***] of the cash compensation received from the transferee for any milestone achievement under the Transfer agreement within thirty (30) days of receipt of such compensation.
 
1.8            Miscellaneous .   Except as expressly amended by this Transfer Agreement, all of the terms and provisions of the Agreement shall remain in full force and effect.  This Transfer Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.  Electronic signatures shall be considered binding.
 
[signatures follow]
 
 
 
 
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IN WITNESS WHEREOF , each of the parties has caused this Transfer Agreement to be executed in a manner appropriate for each and to be dated as of the date first above written.
 
 
 
MONOSOL RX, LLC
 
       
 
By:
/s/Keith Kendall  
     
 
Name:  Keith Kendall
 
     
 
Its: Chief Executive Officer
 
 

 
 
GALENA BIOPHARMA, INC.
 
       
 
By:
/s/ Mark W. Schwartz  
     
 
Name:  Mark W. Schwartz
 
     
 
Its: President & Chief Executive Officer
 


 
Exhibit 4.19

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    Distribution and Licence Agreement
 
 
between
 
 
HELSINN HEALTHCARE SA
 
 
and
 
 
DARA BIOSCIENCES, INC.
 
 
for
 
 
GELCLAIR
 
 
 
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TABLE OF CONTENTS
Page
     
     
ARTICLE 1
DEFINITIONS
2
ARTICLE 2
GRANT OF RIGHTS AND COMPETITION
3
ARTICLE 3
EXCHANGE OF INFORMATION AND
 
 
  IMPROVEMENTS
6
ARTICLE 4
MARKETING APPROVAL OF PRODUCTS
7
ARTICLE 5
POST-MARKETING APPROVAL DEVELOPMENT
10
ARTICLE 6
TRADEMARK OF PRODUCTS
10
ARTICLE 7
SUPPLY OF PRODUCTS
12
ARTICLE 8
PRICE AND TERMS OF PAYMENT
15
ARTICLE 9
COMPENSATIONS BY DISTRIBUTOR
15
ARTICLE 10
MARKETING AND SALE OF PRODUCTS
16
ARTICLE 11
RECORDS AND REPORTS
18
ARTICLE 12
REPRESENTATIONS AND WARRANTIES
19
ARTICLE 13
LIABILITIES, INDEMNITIES AND INSURANCE
20
ARTICLE 14
THE PATENTS
22
ARTICLE 15
THE SINCLAIR AGREEMENT
23
ARTICLE 16
CONFIDENTIALITY AND ANNOUNCEMENTS
23
ARTICLE 17
FORCE MAJEURE
24
ARTICLE 18
TERM
25
ARTICLE 19
TERMINATION
25
ARTICLE 20
MISCELLANEOUS
26
ARTICLE 21
APPENDICES
28
ARTICLE 22
LAW TO GOVERN AND ARBITRATION
28
ARTICLE 23
ENTIRETY OF AGREEMENT AND
 
 
  SEVERABILITY
29
     
FIRST APPENDIX
PRODUCTS
30
SECOND APPENDIX
LIST OF KNOW-HOW ITEMS
31
THIRD APPENDIX
PATENTS
32
FOURTH APPENDIX
POST MARKETING APPROVAL REGULATORY
 
 
  ACTIVITIES
33
FIFTH APPENDIX
ADVERSE EVENTS REPORTING
34
SIXTH APPENDIX
PRICE
40
SEVENTH APPENDIX          
PROMOTION AND MARKETING ACTIVITIES
41
 
 
 
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THIS AGREEMENT (hereinafter called “Agreement”) is made and effective as of this 7 th day of September 2012 (hereinafter called “Effective Date”), between HELSINN HEALTHCARE SA, a corporation organised and existing under the law of Switzerland and having its registered office at Via Pian Scairolo 9, 6912 Lugano, Switzerland (hereinafter called “HHC”) of the one part, and DARA BIOSCIENCES, INC., a corporation organised and existing under the law of North Carolina, USA, and having its registered office at 8601 Six Forks Road, Suite 160, Raleigh, NC 27615, United States of America (hereinafter called “DISTRIBUTOR”), of the other part.
 
 
RECITALS
 
 
 
a.
HHC carries on business as a licensing company, product developer and pharmaceutical trader and, in particular for the purpose of this Agreement, has in-licensed from the company Sinclair Pharma pic, United Kingdom and its affiliated companies (hereinafter collectively called “Sinclair”) by means of a Licence Agreement dated June 27 th , 2003, as subsequently amended, (hereinafter, the “Sinclair Agreement”) world-wide exclusive rights to use certain patents and know-how to develop, manufacture, have manufactured, register, import, dispose of, or offer to dispose of, offer for sale, market, promote, distribute and sell, directly or indirectly, the Products (as hereinafter defined).
 
 
b.
DISTRIBUTOR carries on business as a pharmaceutical company and, in particular for the purpose of this Agreement, represents that it is a reputable and well-established company, having a size and a position on the market adequate to effectively promote, market, distribute and sell the Products (as hereinafter defined) and that it is well connected on the market and has the necessary sales force to successfully sell the Products in the Field throughout the Territory (as hereinafter defined).
 
 
c.
The Parties entered on 21 st March 2012 into a Secrecy Agreement by means of which HHC disclosed to DISTRIBUTOR confidential information and data relating to the Products.
 
 
d.
DISTRIBUTOR now wishes to acquire the right to act as HHC’s licensee and distributor for the Products in the Territory and HHC is willing to so appoint DISTRIBUTOR under the terms and conditions hereinafter set forth.
 
 
e.
The Parties agree that this preamble shall be a binding part of this Agreement and that all capitalised terms used in this preamble shall have the meaning as defined in Article 1 hereafter.
 
 
 
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NOW, THEREFORE, the Parties hereby agree as follows:
 
 
1.
ARTICLE 1 - DEFINITIONS
 
The following terms as used in this Agreement have, unless the context clearly indicates otherwise, the following meanings:
 
1.1
“Accounting Period” means the period beginning on the date of launch with respect to the first Product to be launched and ending on the last day of the following March, June, September or December, as the case may be, and each three-month period thereafter beginning on each April 1, July 1, October 1 and January 1; provided that the final Accounting Period shall end on the date of termination or expiration of this Agreement.
 
1.2
“Affiliate” means an organisation that, whether now or in the future, controls, is controlled by or is under common control with a Party. For the purposes of this definition, the terms “controls,” “controlled by,” and “under common control with” as used with respect to any Party, means the possession (directly or indirectly) of fifty percent or more of the voting stock or other equity interest of a subject entity with the power to vote, or the power in fact to control the management decisions of such entity through the ownership of securities or by contract or otherwise.
 
1.3
“Field” means [***].
 
1.4
“HHC’s Othe r Distributors” means any distributor and/or licensee appointed by HHC to promote and sell the Products in any country of the world outside the Territory and/or outside the Field in the Territory.
 
1.5
“Improvements” means all improvements, modifications or developments relating to the Products forms subject of this Agreement, which might improve the quality or consumer acceptance and/or patient compliance of the Products. For clarity, “Improvements” (i) shall not include dosage forms other than those included in the FIRST APPENDIX hereto, and (ii) will be provided by either Party to the other on an “as is” basis and neither Party makes any representations or warranties, express or implied, as to the accuracy or completeness of the Improvements provided to the other Party under this Agreement.
 
1.6
“Know-how” means valuable, secret and substantial information regarding the Products within the Field, including but not limited to documentation and information on file with any competent Regulatory Authority in support of the Marketing Approval, which may be necessary, useful or advisable to enable DISTRIBUTOR to promote , distribute, market and sell the Products in the Field in the Territory, as far as controlled by or available to, and not prohibited to be disclosed or licensed by, HHC, all as listed in the SECOND APPENDIX hereto and as is or will be specified in the documentation which HHC has delivered or will deliver to DISTRIBUTOR after execution of this Agreement.
 
1.7
“Marketing Approval” means the authorisations for the sale and marketing of the Products in each country of the Territory granted by the Regulatory Authority, which is legally required to lawfully market and sell the Products in each country of the Territory, including, without limitation, any governmental price approval or reimbursement approved under a national health insurance system.
 
1.8
“Regulatory Authority” means the competent health/regulatory authorities responsible for the granting and supervision of t h e Marketing Approvals for medical devices in each country of the Territory.
 
1.9
“Net Sales” means the gross amounts invoiced by DISTRIBUTOR in respect of sales of the Products in each country of the Territory by DISTRIBUTOR for arm’s length sales to any non- Affiliated third party less the following deductions, to the extent actually made or reasonably accrued and however in an amount not exceeding normal and customary deductions under Generally Accepted Accounting Principles or International Accounting Standards: [***].
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
 
1.10
“Parties” means HHC and DISTRIBUTOR and “Party” means either of them as the context indicates.
 
 
1.11
“Patents” means (a) the patents and the patent applications relating to the Products within the Field, licensed to HHC pursuant to the Sinclair Agreement, as listed in the THIRD APPENDIX hereto; (b) all patents in the Territory issuing from said applications; (c) any continuations, continuations-in-part, divisions, patents of addition, utility patents, reissues, renewals, re-examinations, requests for continued examination, registrations, patents of importation or any patent term extensions thereof.
 
 
1.12
“Products” means the products identified in the FIRST APPENDIX hereto, for the indications which will be described in the Marketing Approval.
 
 
1.13
“Sub- Contractors ” means DISTRIBUTOR ’S sub-distributors, specialty pharmacy providers, wholesalers, service providers , group purchasing organizations, hospitals, pharmacies, and other health care entities that provide pharmaceutical products to the extent strictly involved in the normal course of DISTRIBUTOR ’S business under this Agreement.
 
 
1.14
“Territory” means   the United States of America, including its territories and possessions.
 
 
1.15
“Trademark” means the trademark “GELCLAIR®” which is and shall be HHC’s property.
 
2.
ARTICLE 2 - GRANT OF RIGHTS AND COMPETITION
 
2.1
Subject to all terms and conditions of this Agreement, HHC hereby grants DISTRIBUTOR, and DISTRIBUTOR hereby accepts, an exclusive, non-transferable and non-assignable, except (i) as provided at Article 2.7 here below with regard to the distribution of the Products by DISTRIBUTOR ’S Sub-Contractors, and (ii) as permitted under Article 20.7 of this Agreement, royalty-bearing licence under the Patents to use the Know-how, to distribute, promote, market and sell the Products in each country of the Territory for the Field.
 
Moreover, subject to all terms and conditions of this Agreement, HHC hereby grants DISTRIBUTOR, which hereby accepts, an exclusive, non-transferable and non-assignable, except (i) as provided at Article 2.7 here below with regard to the distribution of the Products by DISTRIBUTOR ’S Sub-Contractors, and (ii) as permitted under Article 20.7 of this Agreement, royalty-bearing licence to affix the Trademark to the Products and to use it solely in connection with the distribution, promotion, marketing and sale of the Products in the Territory for the Field.
 
2.2
The exclusivity granted pursuant to this Article 2 means that only DISTRIBUTOR may be licensed by HHC to distribute , promote, market and sell the Products in the Territory for the Field, unless specifically provided for to the contrary under this Agreement.
 
The Parties acknowledge, however, that HHC has or may have other licensing arrangements outside the Territory, or within the Territory outside the Field, and that Products sold by third parties may enter the Territory and/or the Field.
 
HHC will use commercially reasonable efforts to include appropriate provisions in any and all agreements with HHC’s Other Distributors prohibiting, to the extent permissible under applicable laws and regulations, distribution of the Products for the Field in the Territory and to seek enforcement of such provisions as and when necessary.
 
 
 
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2.3
DISTRIBUTOR agrees not to market, ship, distribute, promote, sell or otherwise actively put into circulation the Products outside the Territory and to pass on to HHC any request for the Products coming to DISTRIBUTOR from any party in any said country.
 
DISTRIBUTOR shall use commercially reasonable efforts to include appropriate provisions in any and all agreements with DISTRIBUTOR ’S Sub-Contractors, clients, etc. prohibiting, to the extent permissible under applicable laws and regulations, distribution of the Products outside the Territory and/or outside the Field in the Territory, and to seek enforcement of such provisions as and when necessary.
 
2.4
Throughout the term of this Agreement, DISTRIBUTOR agrees not to, directly or indirectly, research, develop, manufacture, apply for Marketing Approval of, sell, market, promote or distribute in the Territory any product competing with the Products, nor enable or authorize any third party to do so, except with the prior written authorisation of HHC, which authorisation may be withheld by HHC in its sole and absolute discretion. In the event that, at any time throughout the term of this Agreement, DISTRIBUTOR, directly or indirectly, researches, develops, manufactures, applies for Marketing Approval of, sells , markets, promotes or distributes any products competing with the Products, (a) DISTRIBUTOR shall previously inform in writing HHC and -upon written request of HHC- it shall promptly give HHC in writing and under secrecy conditions sufficient evidence that the Know-how is not being used for the development, manufacture, application for Marketing Approval, distribution, promotion, marketing, and/or sale of said competing products; (b) HHC shall have the right to immediately cease supplying the DISTRIBUTOR with any Improvements, notwithstanding the provisions of Article 3.3 hereunder; and (c) HHC shall have the right to vary the exclusive licences granted hereunder into non-exclusive licences by written notice to DISTRIBUTOR. For the purpose of this provision, a product which “competes with the Products” is hereby defined as any product which is used for indications in the Field other than the Products.
 
2.5
DISTRIBUTOR acknowledges and agrees that it shall not have the right to manufacture, directly or indirectly, the Products. In order to maintain at all times the highest quality for the Products and to ensure a scientifically proper and safe exploitation of the licensed Know-how and Patents and in order to maintain and to protect the goodwill of the Trademark, DISTRIBUTOR undertakes to purchase all of its Products’ requirements exclusively from a source indicated or approved in writing by HHC.
 
2.6
DISTRIBUTOR acknowledges that there are or there may be different dosage forms, presentations, uses or indications of the Products and that the rights and licences hereby granted by HHC are limited to the Products and to the Field. HHC retains the right to, and shall be free to exploit at its own discretion into and outside the Territory, any and all dosage forms, presentations, uses or indications other than the Products in the Field, in whichever dosage form and/or formulation HHC may deem fit, and DISTRIBUTOR shall have no rights in any respect whatsoever to such dosage forms, presentations, uses and/or indications outside the Field. HHC shall offer to DISTRIBUTOR a first negotiation right for the Territory to distribute, promote, market and sell (i) any new dosage form/s and/or presentation/s of the Products and/or (ii) any new indication/s of the Products becoming available to HHC throughout the term of this Agreement and which HHC is free to offer in the Territory. DISTRIBUTOR shall have a one-month period from notification by HHC to exercise, on an exclusive, basis said first negotiation right and to decide, by written election to HHC, whether it is interested in said new dosage form/s and/or presentation/s and/or indication/s or not. If DISTRIBUTOR decides to exercise said first negotiation right, it shall do so by notifying HHC in writing. Upon notification by DISTRIBUTOR, the Parties shall then enter into exclusive discussions and seek an agreement in good faith on the best steps to be taken and on the timing and resources needed in order to develop, file the relevant application for Marketing Approval and launch said new dosage form/s and/or presentation/s and/or indication/s in the Territory, as well as on the supply price and any other conditions of supply and marketing of said new dosage form/s and/or presentation/s and/or new indication/s, including but not limited to relevant minimum sales obligations. Upon reaching and signing said agreement, this Agreement shall be fully applicable also with respect to said new dosage form/s and/or presentation/s and/or new indications and the definition of “Products” and/or of “Field” as per Articles 1.12 and 1.3 hereabove shall have to be considered and construed as accordingly amended; provided however that in case of any conflict or inconsistency between the terms and conditions of this Agreement and the terms of the agreement signed specifically in relation to the new dosage form/s and/or presentation/s and/or new indications, the terms of said latter agreement shall prevail. If DISTRIBUTOR decides not to exercise said first negotiation right or if an agreement cannot be reached within 6 (six) months from the date of DISTRIBUTOR ’S notification of interest to HHC, HHC shall then be free to fully exploit said new dosage form/s and/or presentation/s and/or new indication/s of the Products directly and/or through any third party in the Territory, however under a trademark different from and not confusingly similar to the Trademark.
 
 
 
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2.7
DISTRIBUTOR shall not have the right to sublicense or otherwise transfer any of its rights and/or obligations. Moreover, DISTRIBUTOR shall not have the right to sub-contract any of its rights and/or obligations hereunder. Notwithstanding anything to the contrary, DISTRIBUTOR shall have the right to sub-contract certain of its rights and/or obligations hereunder to its Sub-Contractors. In any such case, DISTRIBUTOR shall be permitted to disclose to said Sub-Contractors such Know-how and other relevant information to the extent strictly necessary and appropriate to correctly carry out the Sub-Contractors’ obligations thereunder, provided that (i) they shall be previously bound in writing to confidentiality and non-use obligations towards DISTRIBUTOR consistent with those provided for in Article 16 below, and (ii) upon HHC’s request, DISTRIBUTOR shall send to HHC a copy of any agreement regarding the Products with any such Sub-Contractors, with the relevant economic terms redacted, for the purpose of enabling HHC to verify compliance with the terms and conditions of this Agreement.
 
2.8
Except as otherwise provided in this Agreement, DISTRIBUTOR shall not enter into any agreement with third parties with respect to the Products except as may be expressly permitted by HHC hereunder in writing, such permission not to be unreasonably withheld. In any such case, DISTRIBUTOR shall be permitted to disclose to said third party such Know-how and other relevant information to the extent strictly necessary and appropriate to correctly carry out the third party’s obligations thereunder, provided that (i) they shall be bound in writing to confidentiality and non-use obligations towards DISTRIBUTOR consistent with those provided for in Article 16 below and (ii) upon HHC’s request, DISTRIBUTOR shall send to HHC a copy of any such agreement regarding the Products, with the relevant economic terms redacted, for the purpose of enabling HHC to verify compliance with the terms and conditions of this Agreement. Nothing in this Agreement shall be construed as giving DISTRIBUTOR any right to use or otherwise deal with the Know-how, the Patents and/or any other information received hereunder for purposes other than those of distributing, promoting, marketing and selling the Products in the Territory for the Field in accordance with the terms and conditions of this Agreement. In particular, and without limiting the generality of the foregoing, DISTRIBUTOR hereby undertakes not to, directly or indirectly, file any application for the Marketing Approval of any generic version of the Products in the Territory or outside the Territory throughout the term of this Agreement.
 
 
 
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2.9
DISTRIBUTOR shall promptly inform HHC of any misappropriation, or threatened or presumed misappropriation of the Know-how which comes to its attention. HHC will decide on the steps to be taken after having discussed the case with DISTRIBUTOR and DISTRIBUTOR shall assist HHC, bearing exclusively its own reasonable internal costs (where reasonable internal costs in no event shall exceed 10 FTE days) in taking legal action, if deemed necessary by HHC, against such misappropriation.
 
3.
ARTICLE 3 - EXCHANGE OF INFORMATION AND IMPROVEMENTS
 
3.1
Throughout the term of this Agreement, HHC shall supply DISTRIBUTOR with any relevant Know-how, in addition to that already supplied at the Effective Date hereof, which may be or become available to HHC and which HHC is free to disclose. Notwithstanding the foregoing, nothing in this Agreement shall require HHC to develop additional Know-how or to obtain additional Know-how from third parties.
 
In the event that DISTRIBUTOR should require technical assistance in connection with its initial sale of the Products in the Territory, HHC will use its commercially reasonable efforts to assist DISTRIBUTOR for reasonable periods of time and at times convenient to HHC.
 
3.2
DISTRIBUTOR shall supply HHC in writing or by any other appropriate support, free of charge, with any and all regulatory and marketing information and with any and all clinical or regulatory data relating to the Products, as soon as they are or become available to DISTRIBUTOR throughout the term of this Agreement. DISTRIBUTOR shall communicate any such information and data exclusively to HHC. HHC shall be free to use such information and data for the purpose of its business and to disclose the same to HHC’s Affiliates, to HHC’s Other Distributors and to Sinclair, which in turn shall be free to use them for the purpose of their business outside the Territory and/or outside the Field in the Territory.
 
3.3
Subject to the provisions of Article 2.4 hereabove, DISTRIBUTOR shall have the right to be licensed, under the terms and conditions of this Agreement, with any Improvement carried out by or which may be discovered, developed, invented or acquired by HHC, for use in accordance with the terms and conditions of this Agreement.
 
Any Improvement which may be carried out by or which may be discovered, developed, invented or acquired by DISTRIBUTOR, its officers, agents or employees, shall be owned by DISTRIBUTOR and may be used by DISTRIBUTOR, directly and/or through its Sub­Contractors, for the sole purpose of the distribution, promotion, marketing and sale of the Products in the Field in the Territory, in accordance with the terms and conditions of this Agreement. Any such Improvement will be promptly disclosed and is hereby automatically licensed free of charge by DISTRIBUTOR to HHC on an exclusive, irrevocable, perpetual basis (except for DISTRIBUTOR ’S activities hereunder) and HHC shall have unrestricted rights to disclose and sublicense the above Improvements to HHC’s Affiliates, to HHC’s Other Distributors and to Sinclair for use outside the Territory and/or outside the Field in the Territory. After termination or expiration of this Agreement for any reason, DISTRIBUTOR (i) shall further grant to HHC an exclusive, irrevocable, perpetual, royalty-free licence to each such Improvement for use also within the Field in the Territory and HHC shall have unrestricted rights to disclose and sublicense such Improvements to HHC’s Affiliates, to HHC’s Other Distributors and to Sinclair also for use within the Field in the Territory, and (ii) shall not grant any licences to Improvements to any third parties. DISTRIBUTOR shall not incur any obligation to any third party which may prohibit or impair its ability to disclose and license Improvements to HHC.
 
3.4
Subject to Article 3.3 above, all Know-how, Improvements and/or other information and data disclosed to DISTRIBUTOR hereunder are at all times and shall after expiration or termination of this Agreement for any reason remain HHC’s sole and exclusive property (except as regards any Know-how originated by Sinclair and licensed to HHC, which is and remains the exclusive property of Sinclair).
 
 
 
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4.
ARTICLE 4 - MARKETING APPROVAL OF PRODUCTS
 
4.1
DISTRIBUTOR   hereby acknowledges and agrees that:
 
i.
HHC has represented to DISTRIBUTOR that the Marketing Approval for the Products, for use in the Field as identified at Article 1.3(i) hereabove, already exists and is in the name of HHC,
 
ii.
HHC has represented to DISTRIBUTOR that at the Effective Date, the Products for use in the Field as identified at Article 1.3(ii) hereabove (i.e. the [***] indication) are under development by HHC for Marketing Approval,
 
iii.
the development of the Products by HHC for the [***] indication may be interrupted or discontinued by HHC at any time in the event that, in HHC’s reasonable judgement, said development becomes commercially unreasonable or the relevant results may be negative or unfavourable,
 
iv.
the development work carried out, directly or indirectly, by HHC will not necessarily result in the grant of the Marketing Approval of the Products for use in the [***] indication in the Territory, and
 
v.
HHC makes no warranty and nothing in this Agreement may or shall be construed as a warranty by HHC that the Products will obtain the Marketing Approval for the [***] indication and DISTRIBUTOR shall have no claims against HHC arising out of any delay or refusal by the Regulatory Authorities to issue the Marketing Approval of the Products for the [***] indication in any way whatsoever.
 
4.2
HHC shall pay all administrative fees for the maintenance in force of Marketing Approval throughout the term of this   Agreement .
 
4.3
DISTRIBUTOR expressly acknowledges and agrees that HHC is and shall at all times remain the sole and exclusive owner of the Marketing Approval and that ownership of said Marketing Approval and any and all rights , title and interest (including any accompanying goodwill) are, and shall at all times remain, vested in HHC.
 
4.4
Being understood and agreed between the Parties that nothing in this Agreement shall require HHC to complete the development of the Products for the [***] indication, and subject to the provisions of Article 4.1 (iii) above, HHC shall use its commercially reasonable efforts to obtain the Marketing Approval of the Products in the Territory for the [***] indication within 12 (twelve) months from the date of the relevant application to the competent Regulatory Authority of the Territory. In the event that the Marketing Approval of the Products for the [***] indication is not granted within said term, and the Parties are unable to find an agreement on any extension of said term, HHC shall have the right to delete the [***] indication from this Agreement by written notice to DISTRIBUTOR, it being understood that HHC shall have no obligation, liability or responsibility whatsoever to compensate, indemnify or reimburse DISTRIBUTOR for any payments, damages, losses, costs or expenses incurred by DISTRIBUTOR in connection with this Agreement or with the deletion of said indication and that the payments already effected by DISTRIBUTOR at the effective date of the deletion of the [***] indication pursuant to Article 9 hereunder shall be retained by HHC.
 
 
 
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4.5
If material alterations, modifications or amendments of the Products are imposed by any competent authority as prerequisites for the grant or the continuation of the Marketing Approval of any of the Products, or if Marketing Approval of the Products is suspended or withdrawn by any said authority, either Party shall notify the other Party immediately and the Parties shall endeavour to agree upon a reasonable and mutually acceptable resolution thereof, taking into consideration Sinclair’s position with regard to this issue. In the event that the Parties are unable to agree upon such a resolution, HHC shall have the right at its sole discretion, upon written notice to DISTRIBUTOR, to delete the Product or Products in question from this Agreement or to take any measure which it reasonably deems necessary or advisable and, if necessary, to terminate this Agreement, in which case the consequences provided for at Articles 19.6 and 19.7 hereunder shall apply, being understood that HHC shall have no obligation, liability or responsibility whatsoever to compensate, indemnify or reimburse DISTRIBUTOR for any payments, damages, losses, costs or expenses incurred by DISTRIBUTOR in connection with this Agreement or termination hereof and that [***].
 
4.6
HHC shall perform and carry out the post Marketing Approval activities connected with Marketing Approval in the Field as described at the FOURTH APPENDIX hereto. All said activities shall be performed by HHC directly or through third parties and DISTRIBUTOR shall render reasonable assistance as may be reasonably required by HHC in this respect.
 
4.7
DISTRIBUTOR shall copy within 48 (forty-eight) hours and keep HHC fully and timely informed, throughout the term of this Agreement, of all communications received from the Regulatory Authorities of the Terri tory concerning the Products.
 
Without prejudice to full compliance by both Parties with any obligations established by applicable laws and regulations of the Territory, any and all communications to the Regulatory Authorities relevant to efficacy, safety and/or tolerability of the Products shall be sent by DISTRIBUTOR only after the relevant contents have been discussed with and approved in writing by HHC. DISTRIBUTOR further undertakes and warrants that it shall at all times strictly comply with any and all laws, rules and regulatory requirements in force in the Territory in connection with the activities, communications and relations contemplated herein and shall be fully responsible towards and hold harmless HHC for any action and/or omission in connection hereto in accordance with the provisions of Article 13 herebelow.
 
4.8
DISTRIBUTOR shall store and distribute, and shall cause the Products to be stored and distributed according to a p plicable medical device regulations or any other applicable laws and regulations.
 
DISTRIBUTOR shall permit HHC and/or any authorised representative or consultant of HHC to enter DISTRIBUTOR ’S premises, as well as the premises of DISTRIBUTOR ’S Affiliates and/or Sub-Contractors in the Territory, during normal business hours, upon reasonable advance notice, but no more than once per year, except in the event that such inspection is necessary due to regulatory and/or safety issues, and at HHC’s sole cost to audit and verify compliance by DISTRIBUTOR, its Affiliates and Sub-Contractors with regulatory and other requirements in force in the Territory, as well as with this Agreement, with respect to all aspects related to Marketing Approval and to correct and safe storage, distribution, promotion, marketing and sale of the Products in the Territory or in connection with any recall thereof. Such audit shall include, without limitation, the right to examine any internal procedures or records of DISTRIBUTOR, its Affiliates and Sub-Contractors relating to the Products. DISTRIBUTOR shall give and shall cause its Affiliates and Sub-Contractors to give, all necessary assistance for a full and correct carrying out of the audit by HHC. No such monitor and/or audit by HHC shall relieve DISTRIBUTOR, its Affiliates and Sub-Contractors of any of their obligations under this Agreement in any way whatsoever.
 
 
 
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In the event that any Regulatory Authority or any other competent authority of the Territory carries out or gives notice of its intention to carry out any inspection or audit of DISTRIBUTOR, its Affiliates or Sub-Contractors or otherwise takes any action in relation to the Products, DISTRIBUTOR shall immediately notify HHC in full details and shall ensure that HHC shall have the right to be present at and to participate in any such inspection or audit, unless DISTRIBUTOR is prevented from doing so by the competent authority.
 
4.9
Each Party undertakes to give the other Party full, accurate and prompt information in writing with regard to (i) adverse events associated with the use of the Products, whether or not ascertained to be definitely attributable to the Products and (ii) any malfunction, failure or deterioration in the characteristics and/or performance of a device as well as any inadequacy in the labelling or the instructions for use which, directly or indirectly, might lead to, or have led to, the death of a patient, or user or of other person or to a serious deterioration in their state of health, in strict accordance with the procedures and rules established in the FIFTH APPENDIX attached to this Agreement.
 
4.10
DISTRIBUTOR shall collaborate with and assist HHC for the purpose of obtaining marketing approval for the Products outside the Territory and/or, outside the Field in the Territory. Such collaboration and assistance shall   include , but not be limited to, doing all such acts as may be reasonably required by HHC for the purpose of permitting access and maximum use by HHC, including HHC’s free and unrestricted right to disclose any such documentation and results to HHC’s Other Distributors, of the documentation and results of the development work on the Products carried out by DISTRIBUTOR pursuant to Article 5.3 here below.
 
4.11
In the event of a recall, complaint, product withdrawal relevant to the Products marketed by DISTRIBUTOR in the Territory, the Parties shall strictly comply with the following procedures and rules:
 
 
4.11.1
DISTRIBUTOR shall within 48 (forty eight) hours inform HHC of any event, including but not limited to product complaint, that might require the necessity of initiating a product recall or market withdrawal. DISTRIBUTOR acknowledges and accepts that the final decision on any recall and/or market withdrawal shall be taken by HHC under its own responsibility. Notwithstanding the above, DISTRIBUTOR shall co-operate in good faith with HHC to help HHC in deciding whether or not such actions need to be implemented.
 
 
4.11.2
In any event, with respect to any recall or product withdrawal, HHC shall be responsible for and shall make, in co- operation with DISTRIBUTOR, all contacts with the Regulatory Authorities in accordance with the terms and conditions of this Agreement and DISTRIBUTOR shall co-ordinate all the necessary activities in connection with such recall or product withdrawal in the Territory.
 
 
4.11.3
DISTRIBUTOR shall comply with HHC’s reasonable and lawful instructions in connection with the Products’ recall and/or withdrawal and shall provide HHC with a document that demonstrates that it is reasonable to assume that the Products subject of the recall or market withdrawal have been removed and proper disposition or corrections have been made.
 
 
4.11.4
If a recall or product withdrawal is necessary for any reason, HHC and DISTRIBUTOR shall each bear the costs of the recall in proportion to each Party’s responsibility for the error necessitating the recall, including but not limited to costs associated with defending or settling claims for product liability , receiving and administering the recalled Products and notification of the recall to those persons whom the Parties deem appropriate.
 
 
 
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4.11.5
Without prejudice to reporting obligations towards Regulatory Authority provided for herein and/or established by applicable laws and regulations, all communications relating to any recall or product withdrawal shall be kept confidential in accordance with the provisions of Article 16 of this Agreement.
 
5.
ARTICLE 5 - POST-MARKETING APPROVAL DEVELOPMENT
 
5.1
HHC shall use its commercially reasonable efforts to carry out any further regulatory trial which may be requested by any Regulatory Authority in the Territory for the maintenance of the Marketing Approval.
 
5.2
DISTRIBUTOR may perform Product trials for the purpose of appropriately and effectively promoting, marketing, distributing and selling the Products in the Territory, subject to the provisions of Article 5.3 below. Notwithstanding the foregoing, any Product trials required to maintain, or reinstate Marketing Approval will be the sole responsibility of HHC, as provided at Article 4.6 here above.
 
5.3
DISTRIBUTOR shall not undertake nor carry out any Product trial without the prior written approval of HHC. DISTRIBUTOR may perform and fund any trials mentioned at Article 5.2 hereabove in accordance with a development plan to be agreed upon in advance with HHC and HHC shall provide to DISTRIBUTOR free of charge any reasonable quantities of Products necessary to carry out said trials. All relevant protocols shall have to be discussed with and approved in writing by HHC. Any and all data, information and know-how, whether patentable or not, arising from said trials will be promptly disclosed and is hereby automatically licensed free of charge to HHC on an exclusive basis even as to DISTRIBUTOR (except for those DISTRIBUTOR ’S activities described herein) and HHC shall have unrestricted rights to disclose and sublicense any and all said data, information and know-how to HHC’s Affiliates, to HHC’s Other Distributors and to Sinclair for use outside the Territory and/or outside the Field in the Territory. DISTRIBUTOR shall have the exclusive right to use any and all said data, information and know-how for the distribution, promotion, marketing and sale of the Products in the Territory for the Field in accordance with the terms and conditions of this Agreement. In addition, HHC shall use commercially reasonable efforts to put at DISTRIBUTOR ’S disposal for use in the distribution, promotion, marketing and sale of the Products in the Territory for the Field in accordance with the terms and conditions of this Agreement, any post-registration trial carried out by HHC’s Other Distributors with regard to the Products.
 
6.
ARTICLE 6 - TRADEMARK OF PRODUCTS
 
6.1
The Products shall be distributed, promoted, marketed and sold by DISTRIBUTOR in the Territory exclusively under the Trademark.
 
6.2
DISTRIBUTOR shall use the Trademark exclusively in connection with and for the purpose of the distribution, promotion, marketing and sale of the Products in the Field in the Territory, complying with all applicable   laws and regulations. DISTRIBUTOR acknowledges that it shall be entitled to no rights whatsoever in the Trademark except as is specifically granted pursuant to this Agreement and then only to the extent of the express grant.
 
6.3
HHC’s trade name and logo shall appear on all Products packaging, labels and inserts and other materials which DISTRIBUTOR uses for the distribution, promotion, marketing and sale of the Products in such form and manner as shall be approved by HHC in writing.
 
 
 
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6.4
DISTRIBUTOR shall make no use of the Trademark except in the form and with the graphics authorised in advance by HHC in writing. DISTRIBUTOR shall for each use feature a prominent notice and acknowledgement of the registered Trademark ownership and license by HHC in conjunction with all usage of the Trademark. HHC shall have the right to review and approve all intended uses of the Trademark in any packaging, inserts, labels, promotional or other materials relating to the Products prior to actual use thereof.
 
6.5
DISTRIBUTOR will not alter, obscure, remove, conceal or otherwise interfere with any markings, names, labels or other indications of the source of origin of the Products which may be placed by HHC on the Products.
 
6.6
DISTRIBUTOR will not use nor apply for registration of any trademarks, trade-names, domain names, logos or designs in connection with the Products, nor shall it use or apply for registration of any trademarks , trade-names, domain names, logos or designs which include the Trademark, alone or in combination, in or outside the Territory, without the prior written authorisation of HHC, which authorisation HHC may withhold in its sole and absolute discretion.
 
6.7
Nothing contained in this Agreement shall be construed as giving DISTRIBUTOR a right to use the Trademark or portions thereof or any word confusingly similar to the Trademark or the name “Helsinn” as DISTRIBUTOR’S corporate name or any part thereof. Throughout the term of this Agreement and thereafter, DISTRIBUTOR shall not use nor apply for registration of, any mark, logo, design or domain name, in or outside the Territory, which is, or is likely to be, confusingly similar to, or could cause deception or mistake with respect to, the Trademark and/or to the name “Helsinn” in relation to any pharmaceutical or chemical or healthcare product or service.
 
6.8
Subject to applicable laws, nothing contained in this Agreement shall be construed as giving DISTRIBUTOR the right to use the Trademark outside the Territory or for any other product than the Products and HHC may use, or licence other to use, the Trademark in all jurisdictions outside the Territory.
 
6.9
The Trademark shall always be used together with the sign “R” or the sign “TM” or such other customary symbol   or legend as directed by HHC.
 
6.10
DISTRIBUTOR recognises the exclusive rights of HHC regarding the Trademark and acknowledges that it shall not acquire any rights in respect of the Trademark of HHC in relation to the Products or of the goodwill associated therewith and that all such rights and g oodwill are, and shall at all times remain, vested in HHC. DISTRIBUTOR shall, if requested by HHC, execute an assignment to HHC of rights in respect of the Trademark and/or of the goodwill associated therewith.
 
6.11
HHC shall keep in force the Trademark by paying the necessary fees throughout the term of this Agreement and by using all reasonable efforts to defend any action or proceeding for cancellation of the Trademark , bearing the whole cost thereof and DISTRIBUTOR shall render any reasonable assistance in this respect.
 
6.12
DISTRIBUTOR shall promptly notify HHC of any threatened or presumed significant counterfeits, copies, imitations, simulations of, or infringement upon, the Trademark or the name “Helsinn” or of any other act of unfair competition which comes to its attention. HHC will decide on the steps to be taken after having discussed the case with DISTRIBUTOR and DISTRIBUTOR shall give its full co-operation therefor. HHC shall bear all the costs of any action which has been taken for defending the Trademark and shall be entitled to retain any indemnification, damages and/or compensation paid by third persons in this respect.
 
 
 
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6.13
DISTRIBUTOR acknowledges that HHC has no adequate remedy under this Agreement or at law in the event that DISTRIBUTOR were to use the Trademark in a manner not authorised by this Agreement and that HHC would , in such circumstances, be entitled to specific performance, injunctive or other equitable relief, including interlocutory and preliminary injunctive relief. DISTRIBUTOR also acknowledges that HHC’s rights and remedies under this Agreement and under the law are intended to be cumulative, and not mutually exclusive.
 
7.
ARTICLE 7 - SUPPLY OF PRODUCTS
 
7.1
DISTRIBUTOR shall, at least three months in advance of the first launch of the Products, supply HHC and/or HHC’s nominee in writing with a purchase forecast for the Products for the next four Accounting Periods. Any such forecast shall be deemed to be a binding order by DISTRIBUTOR for the first of the four Accounting Periods. Moreover DISTRIBUTOR shall issue its firm orders relevant to the three following Accounting Periods at least 90 (ninety) days in advance of the requested delivery date and, at the time of placing such firm order, it shall supply HHC and/or HHC’s nominee with its purchase forecast for the four Accounting Periods following the Accounting Period for which the firm order is being placed, the forecast for the first of the four Accounting Periods being binding, so as to maintain at all times a rolling twelve-month purchase forecast and shall promptly notify HHC and/or HHC’s nominee of any projected changes to the non-binding portion thereto.
 
7.2
The Products will be supplied by HHC or a HHC’s nominee to DISTRIBUTOR only against DISTRIBUTOR’S written order and all orders shall be subject to written acceptance and confirmation by HHC or HHC’s nominee before becoming binding.
 
Each order by DISTRIBUTOR shall be for a minimum quantity corresponding to:
 
 
(i)
[***] boxes of Product No. 1 (i.e. box of 15 sachets of 15ml each) or [***] sachets of 15ml each, or multiples thereof, to be packed by HHC or its nominee in boxes of 15 sachets and/or in boxes of 4 sachets according to appropriate instructions to be given by DISTRIBUTOR along with the relevant order, limited to the first calendar year from the Effective Date of this Agreement, and
 
 
(ii)
[***] boxes of Product No. 1 (i.e. box of 15 sachets of 15ml each) or [***] sachets of 15ml each, or multiples thereof, to be packed by HHC or its nominee in boxes of 15 sachets and/or in boxes of 4 sachets according to appropriate instructions to be given by DISTRIBUTOR along with the relevant order starting from the second calendar year and throughout the term of this Agreement.
 
It being understood and agreed between the Parties that with regard to each Product order passed by DISTRIBUTOR to HHC according to the provisions of this Article 7.2, HHC or its nominee shall deliver to DISTRIBUTOR certain quantities of Product No. 2 (i.e. sample box of 4 sachets of 15ml each) up to a maximum of 10% (ten percent) of each said Product order, unless otherwise expressly agreed between the Parties in writing.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
HHC or HHC’s nominee shall use commercially reasonable efforts to execute all orders received and accepted pursuant to this Article (i) within 120 (one hundred and twenty) days from the approval by HHC of the artwork and all electronic files for printing packs, package inserts, leaflets and labels with regard to the first Product order and (ii) within 90 (ninety) days from the date of acceptance of the relevant order by HHC or HHC’s nominee with regard to any subsequent Product orders. In each twelve-month period, DISTRIBUTOR ’S firm orders shall be at least 80% (eighty percent) and not more than 120% (one hundred and twenty percent) of its initial forecast of Products for the three non-binding Accounting Periods as per Article 7.1 hereabove. HHC or HHC’s nominee shall have no obligation to supply more than 100% (one hundred percent) of DISTRIBUTOR ’S initial forecast of Products within the applicable Accounting Periods. However, in the event that, in any Accounting Period, DISTRIBUTOR ’S orders are more than 100% (one hundred percent) of the relevant forecasts, HHC or HHC’s nominee agrees to use commercially reasonable efforts to supply DISTRIBUTOR with up to 120% (one hundred and twenty percent) of DISTRIBUTOR ’S forecast of Product during said Accounting Period, on condition however that this shall not hamper, delay or otherwise prejudice supplies of Products to any other of HHC’s or HHC nominee’s customers. DISTRIBUTOR shall keep throughout the term of this Agreement a stock of Products adequate to meet market demand and to cover possible shortages in the supplies of Products, such stock to approximately correspond at least to three-month average sales.
 
DISTRIBUTOR hereby acknowledges and agrees that any and all HHC or HHC’s nominee Products deliveries will be made with a Products quantity tolerance of +/- 10% (ten percent) with respect to the Products quantity ordered from time to time by DISTRIBUTOR and accepted by HHC.
 
7.3
Any purchase order or acknowledgement thereof, whether printed, stamped, typed or written, shall be governed by the terms and conditions of this Agreement and none of the provisions of such purchase order or acknowledgement thereof shall be applicable, except those specifying quantity ordered, delivery dates and invoice information, and with respect to those specifications only to the extent that they are in compliance with the terms and conditions of this Agreement. To the extent there is any discrepancy between this Agreement and any purchase order or acknowledgement thereof, this Agreement will control.
 
7.4
All orders of Products shall be delivered EXW Lecco, Italy (Incoterms 2010) to DISTRIBUTOR at the address stated in Article 20.3, or at such other address as may be agreed in writing by the Parties. DISTRIBU T OR shall be solely responsible for all customs clearance of, and import/export regulations for, the Products and it shall bear and pay all taxes, duties, levies and other charges imposed by reason of its purchase, import and resale of the Products.
 
7.5
HHC shall manufacture the Products, or shall cause the Products to be manufactured, in accordance with the quality system as required by the medical device applicable regulations and with applicable specifications.
 
7.6
Each batch of Products shall be delivered by HHC or HHC’s nominee accompanied by appropriate certificate of analysis, attesting the compliance of each relevant batch with the specifications for said Products provided by HHC to DISTRIBUTOR, to the extent they are approved in the Marketing Approval issued for the Products in the Territory. DISTRIBUTOR shall carry out appropriate visual inspection of the Products, as well as any other analysis which DISTRIBUTOR may deem appropriate or necessary, upon receipt of the Products in the Territory. Should it occur that any batch of Products does not meet said approved specifications, DISTRIBUTOR shall, as soon as possible and in any case (i) within 30 (thirty) days after receipt of the Products, with regard to evident defects, and (ii) as soon as reasonably possible and in any case within 180 (one hundred eighty) days after receipt of the Products, with regard to latent defects, give notice in writing to HHC specifying in detail the claimed non-conforming characteristics of the Products. In the absence of DISTRIBUTOR ’S notification within the said term, DISTRIBUTOR shall be deemed to have given an unqualified acceptance of such Products and to have waived all of its claims of any kind with respect thereto, without prejudice however to the provisions of Article 13.2 hereunder. Should HHC recognise that such Products delivered to DISTRIBUTOR do not meet the specifications, and provided DISTRIBUTOR demonstrates that the Products have been properly handled and stored after delivery, HHC or HHC’s nominee shall replace, at its own cost, such Products, being understood that HHC or HHC’s nominee total responsibilities hereunder shall be limited to said replacement of Products. Should HHC not be in agreement with DISTRIBUTOR ’S claim of defect, a sample of the alleged defective Products shall be submitted for analysis to a laboratory to be agreed between DISTRIBUTOR and HHC in writing. The decision of such laboratory shall be final and binding for both DISTRIBUTOR and HHC and the corresponding expenses will be paid by the Party found to be in error.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
7.7
HHC shall at any time be free to determine the manufacturer and the place of manufacture of the Products, subject however to applicable laws and regulations and to compliance with this Agreement. In no event shall DISTRIBUTOR be entitled to manufacture any Products by virtue of this Agreement. HHC shall permit DISTRIBUTOR ’S quality control representatives, at reasonable times and on reasonable notice but not more than once a year, to inspect those areas of HHC’s or HHC’s nominee’s (subject in this case to prior approval of any said HHC’s nominee) production facilities where the Products are manufactured for the purpose of verifying compliance of the manufacturing procedures with the quality system as required by the medical device applicable regulations.
 
7.8
DISTRIBUTOR shall not make alteration or permit alterations to be made to the Products. DISTRIBUTOR shall store and distribute the Products, and shall cause the Products to be stored and distributed, according to applicable medical device regulations or any other applicable laws and regulations. DISTRIBUTOR shall permit HHC’s representatives, during normal business hours, upon reasonable advance notice in writing, at HHC’s sole cost, and no more than once per year, except in the event that such inspection is necessary due to regulatory and/or safety issues, to inspect those areas of the premises of DISTRIBUTOR, its Affiliates and its distributors where the Products are inspected, analysed or stored, for the purpose of verifying compliance with applicable laws and regulations as well as with this Agreement. Such inspection shall include, without limitation, the right to examine any relevant internal procedures or records of DISTRIBUTOR, its Affiliates and distributors. DISTRIBUTOR shall give and shall cause its Affiliates and distributors to give, all necessary assistance for a full and correct carrying out of the inspection by HHC. No such inspection by HHC shall relieve DISTRIBUTOR, its Affiliates and distributors of any of their obligations under this Agreement in any way whatsoever.
 
7.9
The Products shall be supplied by HHC or HHC’s nominee in finished packed form, inclusive of leaflet, ready for distribution . Based upon indications, box design and measurements provided by HHC or HHC’s nominee to DISTRIBUTOR, artworks and all necessary electronic files for printing packs, package inserts, leaflets and labels will be prepared and supplied by DISTRIBUTOR, at its expense, to HHC and shall have to be approved by HHC before first printing and use thereof, such approval not to be unreasonably withheld; it being understood and agreed between the Parties that each box of Product No. 2 (i.e. box of 4 sachets of 15ml each) shall display on the relevant packaging the notice “SAMPLE - NOT FOR SALE”. Any relevant change shall have to be communicated by DISTRIBUTOR at least 6 (six) months in advance of its enforcement. The costs relevant to the change, including costs relevant to repackaging or disposal of Products in stock at HHC or HHC’s nominee, (i) shall be borne by the Party requesting the change, or (ii) shall be borne by HHC in the event that the change is required by any regulatory authority, or (iii) shall be shared between the Parties in the event that the change is jointly deemed advisable by the Parties.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
8.
ARTICLE 8 - PRICE AND TERMS OF PAYMENT
 
8.1
As of the Effective Date, the prices of the Products to DISTRIBUTOR are set forth in the SIXTH APPENDIX hereto. [***].
 
8.2
Any payment by DISTRIBUTOR for the delivered Products shall be effected by wire transfer of immediately available funds to an account designated in writing by HHC in US Dollar within 30 (thirty) days from the date of the relevant invoice and be deemed paid when freely received. DISTRIBUTOR shall bear all costs and expenses in connection with effecting payments. Without prejudice to the provisions of Article 19.1 hereunder and to any other remedy which may be available to HHC in accordance with this Agreement and/or applicable law, [***].
 
8.3
DISTRIBUTOR shall [***].
 
8.4
In the event that, at any time throughout the term of this Agreement, [***]
 
9.
ARTICLE 9 - COMPENSATIONS BY DISTRIBUTOR
 
 
9.1
As partial consideration for the rights granted and information disclosed under this Agreement, DISTRIBUTOR shall pay to HHC a total amount of [***] which shall be paid according to the following instalments:
 
[***].
 
The above milestone payments shall be paid by DISTRIBUTOR to HHC by wire transfer of immediately available funds to an account designated in writing by HHC, within 30 (thirty) days from the date of the relevant invoice.
 
9.2
In addition to the above milestone payments, DISTRIBUTOR shall pay to HHC the following sales performance payment , which shall not be refundable nor creditable towards future royalties and which shall be paid upon the first occurrence of the event described below with respect to the Net Sales of the Products made by DISTRIBUTOR in the Territory:
 
[***].
 
The above sales performance payment shall be paid by DISTRIBUTOR to HHC by wire transfer of immediately available funds to an account designated in writing by HHC, within 30 (thirty) days from the date of the relevant invoice.
 
9.3
In addition to the milestone and sales performance payments described, respectively, at Articles 9.1 and 9.2 above, DISTRIBUTOR shall pay to HHC a royalty of [***] on all Net Sales throughout the term of this Agreement. It is expressly agreed that if the Know- how becomes publicly known other than by action of HHC , said royalty shall continue to be payable throughout the term of this Agreement, without prejudice to the payment to HHC of additional damages in case the Know-how becomes publicly known by the action of DISTRIBUTOR, directly and/or through any third party.
 
 
9.3.1
Royalties due by DISTRIBUTOR pursuant to this Article shall accrue in US Dollar and payments shall be made in US Dollar by wire transfer of immediately available funds to an account designated in writing by HHC within 30 (thirty) days from the date of the relevant invoice, after the end of each Accounting Period, in respect of the Net Sales achieved in that Accounting Period. Without prejudice to HHC’s right to be paid in accordance with the provisions hereof as well as to any other remedy which may be available to HHC in accordance with this Agreement and/or applicable law, [***].
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
 
9.3.2
For the purpose of computing the volume of the Net Sales, the Products shall be deemed to have been sold by DISTRIBUTOR on the date of invoicing or on the date of delivering, whichever is first to occur, the same to the customer by DISTRIBUTOR, and no deduction shall be made for bad or doubtful debts arising in connection therewith.
 
9.4
DISTRIBUTOR will add Value Added Tax (VAT) if any, as and where provided by law, to all the payments rendered and pay such VAT directly to the competent authorities under its own responsibility, or, where so provided by law, mark the payments with the notice: “VAT zero rated”, stating the title of the exemption or exclusion.
 
9.5
If any official authorisation shall be required to enable DISTRIBUTOR to effect any payments of compensations due and payable hereunder, DISTRIBUTOR shall use its best efforts to secure such authorisation within the times stipulated in this Article, and in the event that by reason of such authorisation not having been granted the payment is delayed beyond the times so stipulated, DISTRIBUTOR shall so advise HHC and shall effect payment by any other lawful means indicated by HHC; failing such indications, DISTRIBUTOR shall effect payment within 15 (fifteen) days of such authorisation being granted [***].
 
9.6
[***].
 
9.7
DISTRIBUTOR shall [***].
 
 
9.8
[***].
 
10.
ARTICLE 10 - MARKETING AND SALE OF PRODUCTS
 
10.1
DISTRIBUTOR hereby undertakes that it will launch the Products in the Field in the Territory as soon as possible and in any case (i) no later than 6 (six) months from the Effective Date, with respect to all indications described at Article 1.3 hereabove other than the [***] indication, and (ii) no later than 6 (six) months from the obtainment, by HHC, of the Marketing Approval for the [***] indication. DISTRIBUTOR shall promptly communicate in writing each launching date to HHC.
 
10.2
DISTRIBUTOR shall be entitled to resell the Products to its customers in the Territory at such prices as it may determine subject to all applicable laws of the Territory. DISTRIBUTOR shall keep HHC fully and timely informed on the price structure of the Products in the Territory and shall promptly notify any change thereof.
 
10.3
DISTRIBUTOR hereby undertakes and warrants that it shall distribute, promote, market and sell the Products throughout the Territory under its corporate name and responsibility and that it will bear the whole cost thereof. DISTRIBUTOR also undertakes and warrants that distribution, promotion, marketing and sale of the Products in the Territory shall fully comply with all laws, regulations and requirements at any time being in force in the Territory and shall be fully consistent with the conditions and requirements of the Marketing Approval.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
10.4
DISTRIBUTOR shall, and procures that its Sub-Contractors shall, promote and distribute the Products in accordance with the international Product profile and positioning approved in writing by HHC and shall regularly supply HHC not later than September 15 in each year throughout the term of this Agreement with its marketing and promotion plans, which shall have to be approved by HHC in writing before use thereof, such approval not to be unreasonably withheld. A marketing strategy for the Products shall be developed and prepared by DISTRIBUTOR consistently with the Marketing Approval as well as in accordance with the international profile of the Products as provided by HHC, and shall have to be discussed with and approved in writing by HHC before implementation thereof, such approval not to be unreasonably withheld. HHC will provide feedback on DISTRIBUTOR ’S marketing strategy within 10 (ten) business days of receipt. DISTRIBUTOR shall keep HHC regularly and fully informed on all its promotional and marketing activities in the Territory regarding the Products and regular meetings shall be organised between the Parties in order to discuss any and all aspects relevant to the promotion and marketing of the Products in the Territory.
 
10.5
Marketing, advertising and promotional materials concerning the Products and training manuals for DISTRIBUTOR ’S medical representatives shall be developed and prepared by DISTRIBUTOR at its own expenses and in co-ordination with HHC which shall render reasonable assistance in this respect, including the opportunity to review and comment the contents of such materials. Any and all said materials and manuals may be used by DISTRIBUTOR only upon prior written approval of the same by HHC, such approval not to be unreasonably withheld.
 
10.6
DISTRIBUTOR shall promptly supply HHC free of charge with PDF copies, in accordance with HHC’s reasonable requests, of all marketing, advertising and promotional materials relevant to the Products and of the training manuals for its medical representatives and HHC shall have the free unrestricted right to use, directly or indirectly, any such material for its business outside the Territory and/or, outside the Field in the Territory.
 
10.7
DISTRIBUTOR undertakes to develop and exploit the market for the Products in the Field throughout the Territory. Throughout the term of this Agreement, DISTRIBUTOR shall, at its own expense, maintain an active sales organisation for marketing and selling the Products in the Field throughout the Territory, continuously maintain an adequate and representative stock of the Products to meet market demand in the Territory and use its commercially reasonable efforts to effectively distribute, advertise, market, sell and promote the sale and use of the Products in the Field throughout the Territory. In particular, and without limiting the generality of the foregoing obligations, DISTRIBUTOR shall perform at least the promotion and marketing activities described in the SEVENTH APPENDIX hereto and shall secure annual minimum sales of the Products, in units (i.e. sachets of 15ml each), in the Territory, in each calendar year throughout the term of this Agreement starting from [***], corresponding to at least [***] of the following sales forecasts:
 
[***]
 
10.8
DISTRIBUTOR shall, before September 15 th in each year throughout the term of this Agreement, provide HHC with an annual sales forecast in units for each of the Products. It is also agreed that DISTRIBUTOR shall develop and supply HHC with sales forecast for 3 (three) years in units for each of the Products, starting from September 2012 and revised annually. These sales forecasts are non-binding.
 
10.9
DISTRIBUTOR shall make clear in all dealings with its customers and prospective customers that it is acting as distributor of the Products in its own name and for its own account as an independent contractor and not as agent of HHC.
 
10.10
The final package of the Products, as well as any change thereof, shall be discussed in good faith by the Parties and shall have to be previously approved in writing by HHC, such approval not to be unreasonably withheld.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
10.11
All packaging, insert sheets, labels, advertising and other materials relevant to the Products shall bear the notice “ Distributed under licence of Helsinn Healthcare SA, Switzerland”, in such form and manner as HHC may deem appropriate subject to any applicable regulatory requirements in the Territory.
 
10.12
DISTRIBUTOR shall not in any way place on the internet any information in any way connected with the Products , the Trademark and/or HHC without the prior written authorization of HHC and shall promptly delete from any website under DISTRIBUTOR ’S control any information on and/or reference to the Products, the Trademark and/or HHC upon HHC’s request and/or upon expiration or termination of this Agreement.
 
The domain name of any website relevant to the Products, the Trademark and/or HHC shall be registered and owned by HHC. For the purpose of promoting and improving the information, awareness and knowledge of the Products in the Territory, HHC will grant DISTRIBUTOR the right to operate a website under a domain name registered by HHC and relevant to the Trademark, subject to terms and conditions to be defined by separate domain name license agreement.
 
In case any local law or regulation requires the domain name of any website relevant to the Products, the Trademark and/or HHC to be in the name of the DISTRIBUTOR, in such case the domain name shall be registered in the name of the DISTRIBUTOR and the relevant contents and any modifications thereof shall in any case have to be approved by HHC and shall be the exclusive property of HHC.
Any domain name relevant to the Products, the Trademark and/or HHC which has been registered in the name of DISTRIBUTOR to comply with local regulations as described above shall be promptly cancelled or transferred to HHC or HHC’s nominee, free of charge, upon expiration or termination of this Agreement for any reason.
 
11.
ARTICLE 11 - RECORDS AND REPORTS
 
11.1
DISTRIBUTOR shall submit to HHC together with each royalty payment a written royalty statement signed by a responsible officer of DISTRIBUTOR which shall show on a monthly basis the units of Products sold or otherwise disposed of by DISTRIBUTOR, the unit price, the gross sales and the Net Sales of each of the Products, its stock of Products, the quantity of distributed free medical samples, a detailed listing of any and all discounts granted and any other relevant information in details sufficient to permit to HHC to determine and verify the Net Sales and the royalties due to HHC, being understood that the monitoring and reporting system hereby established shall not interfere with the right of the DISTRIBUTOR to set the resale price of the Products in the market of the Territory. Throughout the term of this Agreement and for a period of at least 3 (three) years thereafter, unless in dispute, in which event they shall be kept until said dispute is settled, DISTRIBUTOR shall keep complete and accurate books, records and accounts in accordance with sound accounting practice covering all its operations hereunder as necessary to determine and verify the units of Products sold or otherwise disposed of by DISTRIBUTOR, the gross sales and the Net Sales and the amount of royalties due to HHC. HHC shall have the right, upon reasonable notice, during business hours, at any time throughout the term of this Agreement and for a period of three years thereafter, but no more than once per year, to have such books, records and accounts inspected and audited by an independent certified public accountant to be nominated by HHC and reasonably acceptable to DISTRIBUTOR. DISTRIBUTOR shall fully co-operate with the independent certified public accountant and make available all work papers and other information reasonably requested in connection herewith. In the event the inspection or audit reveals that DISTRIBUTOR ’S reports are not in accordance with actual sales and that an underpayment has occurred, DISTRIBUTOR (i) shall immediately pay to HHC any underpaid royalties [***] of the date HHC delivers to DISTRIBUTOR the relevant inspection or audit report, and (ii) shall bear all the costs of the inspection or audit and [***]. In the event that the inspection or audit reveals an overpayment by DISTRIBUTOR, [***].
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
11.2
Within 10 (ten) days from the end of each month throughout the term of this Agreement, DISTRIBUTOR shall supply HHC with a written report showing the units of Products sold and the units of free medical samples distributed during such month in the Territory.
 
11.3
DISTRIBUTOR shall promptly provide HHC with written reports of any importation or sale of any preparation for the Field in the Territory of which DISTRIBUTOR has knowledge from any source other than HHC , as well as with any other information which HHC may reasonably request in order to be updated on the market conditions in the Territory.
 
12.
ARTICLE 12 - REPRESENTATIONS AND WARRANTIES
 
12.1
HHC hereby represents and warrants to DISTRIBUTOR as follows:
 
 
12.1.1
HHC has been duly organised and is validly existing as a corporation in good standing under the laws of Switzerland. HHC has the corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement.
 
 
12.1.2
The execution , delivery and performance of this Agreement, and the consummation of the transactions contemplated by this Agreement, by HHC have been duly and validly authorised by all requisite corporate actions.
 
 
12.1.3
The persons executing this Agreement on behalf of HHC are duly authorised to do so and by so doing have bound HHC to the terms and conditions of this Agreement.
 
 
12.1.4
HHC has received no notice from any of its licensors under the Sinclair Agreement that it is in material breach of any of its obligations under the Sinclair Agreement, and it is not aware of any material breach of the Sinclair Agreement.
 
 
12.1.5
HHC has licensed sufficient rights to the Products, Patents and Know-how received under the Sinclair Agreement for it to grant all rights granted hereunder to DISTRIBUTOR and, other than the grant of licence to third parties manufacturer, HHC has not assigned and/or granted licenses to the Patents or Know-how in the Territory for the Field, or entered into any inconsistent prior obligations, to any other person or entity that would restrict or impair the rights granted hereunder to DISTRIBUTOR.
 
 
12.1.6
the Marketing Approval for the Products, for use in the Field as identified at Article 1.3(i) hereabove, already exists and is in the name of HHC.
 
 
12.1.7
at the Effective Date, the Products for use in the Field as identified at Article 1.3(ii) hereabove (i.e. the [***] indication ) are under development by HHC for Marketing Approval, however nothing in this Agreement shall be deemed as an obligation of HHC to complete the development of the Products for the [***] indication and DISTRIBUTOR shall have no claims against HHC if said development is interrupted or discontinued by HHC at any time, as provided at Article 4.1 (iii) here above.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
12.2
DISTRIBUTOR   hereby represents and warrants to HHC that:
 
 
12.2.1
DISTRIBUTOR has been duly organised and is validly existing as a corporation in good standing under the laws of North Carolina, United States of America. DISTRIBUTOR has the corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement.
 
 
12.2.2
The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated by this Agreement, by DISTRIBUTOR have been duly and validly authorised by all requisite corporate actions.
 
 
12.2.3
The persons executing this Agreement on behalf of DISTRIBUTOR are duly authorised to do so and by so doing have bound DISTRIBUTOR to the terms and conditions of this Agreement.
 
 
12.2.4
The execution , delivery and performance by DISTRIBUTOR of this Agreement requires no action by or in respect of, or consent or approval of, or filing with, any governmental authority, except the Marketing Approval.
 
 
12.2.5
There is no action, suit, investigation or proceeding pending against, or to the knowledge of DISTRIBUTOR, threatened against or affecting, DISTRIBUTOR before any court, arbitrator or any governmental authority, including but not limited to Regulatory Authority, that in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement, and, to the knowledge of DISTRIBUTOR, there is no reasonably valid basis for any such action, suit, investigation or proceeding to be brought.
 
 
12.2.6
DISTRIBUTOR understands and acknowledges that, as of the Effective Date hereof, there is no assurance that there is or will be a market for the Products, and DISTRIBUTOR expressly assumes the risk that the Products will be commercially marketable. HHC shall have no liability to DISTRIBUTOR of any kind, [***].
 
 
12.2.7
DISTRIBUTOR has been given full and complete access to such requested information and records of HHC as DISTRIBUTOR deemed appropriate to determine its interest and willingness in entering into this Agreement.
 
 
12.2.8
DISTRIBUTOR is a pharmaceutical company having the size and position on the market adequate to market, promote, distribute and sell the Products.
 
13.
ARTICLE 13 - LIABILITIES, INDEMNITIES AND INSURANCE
 
13.1
DISTRIBUTOR shall be fully liable for and shall defend, indemnify and hold HHC and its Affiliates, officers, directors and employees wholly free and harmless from and against any and all liabilities, damages, losses , costs, taxes, expenses (including reasonable attorneys’ fees and other expenses of litigation and arbitration), claims, demands, suits, penalties, judgements or administrative and judicial orders to the extent arising out of or in any way resulting from any claim, suit or proceeding in any way related to (a) any failure by DISTRIBUTOR and/or its Sub-Contractors to comply with any applicable laws, regulations and/or administrative decision regarding the Marketing Approval and/or the Products; (b) the performance of the development work relevant to the Products as described at Article 5.3 above; (c) any defect in the results of the development work carried out by or on behalf of DISTRIBUTOR as provided at Article 5.3 above; (d) the storage, distribution, sampling, record-keeping, analysis, transfer or sale of the Products; (e) the promotion, advertising and marketing of the Products; (f) misuse of the Know-how, the Patents and the Trademark by DISTRIBUTOR or its Sub­Contractors; (i) failure of any Products supplied hereunder to comply with the applicable approved specifications in the event that such non-compliance (1) could have been detected by DISTRIBUTOR using ordinary diligence trough visual inspection of the Products, as provided at Article 7.6 above, or (2) results from any Products which has been altered, changed, packed or re-packed, processed or otherwise treated other than in strict accordance with HHC’s instructions and specifications; or (i) any negligent or wrongful act or omission and/or any breach by DISTRIBUTOR or by any of its Sub-Contractors of any of DISTRIBUTOR ’S obligations, representations and/or warranties hereunder.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
 
13.2
HHC shall be fully liable for and shall defend, indemnify and hold DISTRIBUTOR and its Affiliates, officers, directors and employees wholly free and harmless from and against any and all liabilities, damages, losses, costs, expenses (including reasonable attorneys’ fees and other expenses of litigation and arbitration), claims, demands, suits, penalties, judgements or administrative and judicial orders, arising out of or in any way resulting from any claim, suit or proceeding in any way related to (a) failure of any Products supplied hereunder to comply with the applicable approved specifications, excluding however any losses, damages, liabilities, costs and expenses resulting from any such non-compliance that (1) could have been detected by DISTRIBUTOR using ordinary diligence through visual inspection of the Products, as provided at Article 7.6 above, or (2) results from any Products which has been altered, changed, packed or re-packed, processed or otherwise treated by DISTRIBUTOR, directly or indirectly, other than in strict accordance with HHC’s instructions and specifications; or (b) any negligent or wrongful act or omission and/or breach by HHC of any of its obligations and/or warranties hereunder and any failure by HHC to comply with any applicable laws, regulations and/or administrative decision regarding the Marketing Approval and/or the Products in the Territory.
 
 
13.3
A Party seeking indemnification pursuant to Articles 13.1 and 13.2 (the “Indemnified Party”) shall promptly notify the Party from whom such indemnification is sought (the “Indemnifying Party”) of any claim or action and render all reasonable assistance to the Indemnifying Party in connection with defending such claim or action. The Indemnified Party shall allow the Indemnifying Party to control the defence of any such claim or action; provided that the Indemnifying Party shall keep the indemnified Party informed of the status of such claim or action and shall not settle such claim or action without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld.
 
 
13.4
It is understood and agreed that the operation and application of Article 13.3 hereabove is however subject to any right of Sinclair under article 16.3 of the Sinclair Agreement, which is hereby acknowledged and accepted by DISTRIBUTOR.
 
 
13.5
DISTRIBUTOR shall be solely responsible towards its customers for handling all matters concerning the Products subject to co-operation with HHC on any recall or other matters that may be injurious to HHC. DISTRIBUTOR shall be responsible for any expired Products, whether stored by DISTRIBUTOR and/or its local distributors or Affiliates or returned by wholesalers, pharmacists, doctors, hospitals to whom said Products have been sold. DISTRIBUTOR shall not be entitled to any replacement of Products nor to any compensation of any kind from HHC in connection herewith. DISTRIBUTOR shall indemnify, defend and hold HHC and its Affiliates, directors, officers and employees wholly free and harmless from and against any and all liabilities, damages, losses, costs, expenses (including reasonable attorneys’ fees and other expenses of litigation and arbitration), claims, demands, suits, penalties, judgements or administrative and judicial orders arising therefrom.
 
 
13.6
Each Party shall indemnify and hold the other Party wholly harmless from and against any and all liabilities, damages, losses, costs, expenses (including reasonable attorneys’ fees and other expenses of litigation and arbitration), claims, demands, suits, penalties, judgements or administrative and judicial orders arising out of any behaviour contrary or in excess to the provisions of Article 20.1 hereunder.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
13.7
The sole representations and warranties of each Party with respect to the matter contemplated by this Agreement are expressly set forth (i) in Article 12.1, with regard to HHC, and (ii) in Articles 4.7, 10.3 and 12.2, with respect to DISTRIBUTOR. Without limiting the generality of the foregoing, HHC makes no representation or warranty of any kind, express or implied, of marketability, capacity or fitness for a particular purpose with respect to the Know-how, the Patents and/or the Products and no oral or written representation by or on behalf of HHC shall be interpreted to contain any such warranty. Neither Party nor any of its employees or representatives is authorised to give any warranties or make any representation on behalf of the other Party.
 
13.8
Notwithstanding any other provision of this Agreement, neither of the Parties shall be liable towards the other for indirect , special, punitive, exemplary, incidental or consequential damages, including without limitation loss of profits or revenues, regardless of whether such damages were foreseeable or not. This clause will however not be applicable in case of breach by DISTRIBUTOR of the limitations of grants and of the non competition obligations stated at Article 2 and in the case of a breach by either Party of the confidentiality and non-use obligations stated at Article 16 of this Agreement.
 
13.9
Each Party agrees to procure and maintain in full force and effect during the term of this Agreement valid and effective insurance policies in connection with its activities as contemplated herein. In particular, each Party shall maintain coverage with limits of liability which are commercially reasonable in the Territory. Within 5 (five) days of the Effective Date and of each beginning of each policy period, each Party shall provide the other Party with a certificate evidencing the coverage required hereby and the amount thereof, upon request. Such coverage shall be with a reputable insurance company and shall have to be maintained for not less than 10 (ten) years following expiration or termination of this Agreement for any reason.
 
14.
ARTICLE 14 - THE PATENTS
 
14.1
DISTRIBUTOR agrees that any Products distributed, promoted, marketed and sold by it will be marked with a notice of patent rights to be provided in due time by HHC, if necessary or required by applicable law to enable the Patents to be enforced to the maximum degree.
 
14.2
DISTRIBUTOR shall co-operate with HHC as may be reasonably requested by HHC for the purpose of filing for and obtaining patent extensions and supplementary or complementary protection certificates, if available, of the Patents under the relevant applicable laws of the Territory.
 
14.3
HHC hereby undertakes that it shall use commercially reasonable efforts for the purpose of causing Sinclair to comply with its obligations under the Sinclair Agreement with regard to prosecution, maintenance, defence and enforcement of the Patents in the Territory.
 
14.4
DISTRIBUTOR shall promptly inform HHC in writing upon its becoming aware of any possible third party infringement of the Patents. HHC shall thereafter promptly report the case to Sinclair in accordance with the relevant provisions of the Sinclair Agreement, for appropriate action by Sinclair and/or HHC. DISTRIBUTOR shall provide assistance, bearing exclusively its own reasonable internal costs (where reasonable internal costs in no event shall exceed 10 FTE days), as may be reasonably requested by HHC.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
14.5
DISTRIBUTOR shall promptly inform HHC in writing upon its becoming aware of any notice or claim that the distribution, promotion, marketing and sale of the Products in the Territory for the Field in accordance with the terms and conditions of this Agreement infringe any third party’s patent rights, or in the event of the commencement of any suit or action for infringement of any such third party’s rights. HHC shall therefore promptly report the case to Sinclair in accordance with the relevant provisions of the Sinclair Agreement, for appropriate action. DISTRIBUTOR shall not settle or compromise any such suit or action without the prior written consent of HHC and shall provide assistance, bearing exclusively its own reasonable internal costs (where reasonable internal costs in no event shall exceed 10 FTE days), as may be reasonably requested by HHC.
 
14.6
DISTRIBUTOR shall fully co-operate with HHC in connection with any action or proceeding relating to the validity of the Patent, including if required being joined as a necessary party to such action or proceeding.
 
15.
ARTICLE 15 - THE SINCLAIR AGREEMENT
 
15.1
DISTRIBUTOR acknowledges that (i) it has received and reviewed a redacted copy of the Sinclair Agreement , and (ii) understands that the rights granted to it by HHC in this Agreement derive from the Sinclair Agreement and are subject to the terms thereof, to the extent disclosed to DISTRIBUTOR.
 
15.2
During the term of this Agreement, HHC agrees to comply in all material respects with its obligations under the Sinclair Agreement to the extent necessary to preserve its rights in the Territory thereunder, except to the extent that such compliance is dependent upon DISTRIBUTOR.
 
15.3
DISTRIBUTOR acknowledges and agrees that (i) HHC has acquired all of its right and interest in and to the Products pursuant to the Sinclair Agreement and that any and all rights that DISTRIBUTOR is acquiring pursuant to this Agreement are subject to, in all cases, the Sinclair Agreement, and [***].
 
16.
ARTICLE 16 - CONFIDENTIALITY AND ANNOUNCEMENTS
 
16.1
Each Party shall treat as strictly confidential the Know-how, Improvements and/or any information and/or document received and/or generated hereunder or in connection with the transactions contemplated by this Agreement not generally known to the trade, including but not limited to non-public information relating to the Patents as well as the results of the development work performed hereunder (all hereinafter referred to as the Information) and shall use it solely for the purpose of and in accordance with this Agreement . Either Party shall not make such Information available to any third party, except to competent government agencies to which it will be essential and/or mandatory to disclose such Information in view of the Marketing Approval, and in this case (a) strictly to the extent requested by said agencies and (b) only upon exercise of its best efforts to cause said agencies to maintain confidentiality thereof.
 
Prior to the publication or presentation of any information or data arising from the activities described at Article 5.3 above, DISTRIBUTOR shall submit to HHC a summary of the proposed publication or presentation at least sixty (60) days prior to the submission thereof for publication or presentation. The purposes for such prior submission are: (i) to provide HHC with the opportunity to review and comment on the contents of the proposed publication or presentation, and (ii) to identify any Information to be deleted from the proposed publication or presentation. Any said publication or presentation may however be made only upon the prior written consent of HHC, which consent may be withheld by HHC in its sole and absolute discretion.
 
 
 
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DISTRIBUTOR shall send HHC copies of all publications related to the Products of which DISTRIBUTOR becomes aware within 15 (fifteen) days from the date of coming into DISTRIBUTOR’S possession.
 
16.2
The Information shall only be made available to such employees of each Party who are directly and necessarily involved in the authorised use of Information, to the extent strictly necessary to perform their duties and obligations hereunder and who are subject to confidentiality and non- use obligations no less stringent than those provided for herein.
 
16.3
Notwithstanding expiration or termination of this Agreement for any reason, these confidentiality and non-use obligations shall continue until the Information has become generally known to the public, provided however that nothing contained herein shall in any way restrict or impair the right of of either Party to use, disclose or otherwise deal with Information which such Party can demonstrate to to the other by clearly convincing documentation:
 
 
16.3.1
is or hereafter becomes part of the public domain through no act or omission of the receiving Party, its employees, Affiliates and/or, with respect to DISTRIBUTOR, any of its Sub-Contractors, or
 
 
16.3.2
receiving Party was in lawful possession of prior to receipt of the Information from the disclosing Party, or
 
 
16.3.3
previously was, or at any time hereafter is, provided to receiving Party by a third party having the right to do so and which did not originate, directly or indirectly, from the disclosing Party and/or from HHC’s licensors under the Sinclair Agreement, or
 
 
16.3.4
at the time of disclosure, was known by receiving Party or an Affiliate or, with respect to DISTRIBUTOR, by any of its Sub-Contractors, or after disclosure was independently developed by receiving Party, an Affiliate or, with respect to DISTRIBUTOR, by any of its Sub-Contractors without use of the Information.
 
17.
ARTICLE 17 - FORCE MAJEURE
 
17.1
If the performance of this Agreement is prevented or restricted by government action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or any other similar cause beyond the control of the defaulting Party, the Party so affected shall be released for the duration of the force majeure, or such other period agreed between the Parties as being reasonable in all circumstances, from its contractual obligations directly affected by the force majeure, provided that the Party concerned shall:
 
 
17.1.1
give prompt notice in writing to the other Party of the cause of force maj eure;
 
 
17.1.2
use commercially reasonable efforts to avoid or remove such cause of non­performance;
 
 
 
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17.1.3
continue the full performance of this Agreement as soon as such cause is removed.
 
17.2
The Parties shall take all reasonable steps to minimise the effects of force majeure on the performance of this Agreement and shall, if necessary, agree on appropriate measures to be taken. Should the force majeure continue for more than 6 (six) months, then the other Party shall have the right to terminate this Agreement forthwith.
 
17.3
Notwithstanding anything contained in this Article 17, obligations to pay money are never excused by force majeure.
 
18.
ARTICLE 18 - TERM
 
18.1
This Agreement comes into force at the Effective Date hereof. Unless terminated earlier pursuant to the provisions hereof and subject to the validity of the Sinclair Agreement, it shall remain in force for a period of 10 (ten) years from the Effective Date.
 
19.
ARTICLE 19 - TERMINATION
 
19.1
Each of the Parties reserves the right to terminate this Agreement in case of any material or persistent breach of any of the terms and conditions of this Agreement by the other Party. The defaulting Party shall be given in writing a 60 (sixty)-day period, except as otherwise specifically provided in this Agreement, to fulfil its obligations hereunder and, if after such period it is still in breach of the Agreement, the other Party shall have the right to terminate this Agreement by written notice to the defaulting Party.
 
19.2
This Agreement shall terminate automatically and without further action by either Party if HHC or DISTRIBUTOR shall become insolvent or shall make an assignment for the benefit of creditors or become involved in receivership, bankruptcy or other insolvency or debtor relief proceedings, or any similar proceedings, or in proceedings, voluntary or forced, whereby the Party involved is limited in the free and unrestrained exercise of its own judgement as to the carrying out of the terms of this Agreement. The Parties intend that upon HHC’s termination of this Agreement pursuant to this Article 19.2, all rights granted hereunder to DISTRIBUTOR shall be terminated and revert to HHC.
 
19.3
HHC reserves the right to terminate this Agreement by giving DISTRIBUTOR 30 (thirty) days advance notice in writing, in the event that the ownership or control (as such term is defined at Article 1.2 hereabove) of DISTRIBUTOR or of a legal entity directly or indirectly owning or controlling DISTRIBUTOR is transferred (whether by merger, consolidation, reorganisation, take-over, change in the ownership of the share capital or otherwise, or in case of sale to a legal entity of all or substantially all of the assets of DISTRIBUTOR’s business or of the assets to which this Agreement relates) to a legal entity [***]. Details of any such changes in ownership or control or of any such sale shall be notified by DISTRIBUTOR to HHC at least 30 (thirty) days prior to completion of such changes or sale.
 
19.4
HHC shall have the right to terminate this Agreement by giving [***] advance notice in writing to DISTRIBUTOR if DISTRIBUTOR [***].
 
19.5
(i) HHC shall have the right to terminate this Agreement upon [***] written notice to DISTRIBUTOR if DISTRIBUTOR [***]; or upon [***] written notice to DISTRIBUTOR if DISTRIBUTOR [***].
(ii) Either Party shall have the right to terminate this Agreement by written notice to the other Party if the other Party or any of its agents, employees, Affiliates or, with respect to DISTRIBUTOR, also any of its Sub-Contractors breaches the confidentiality and/or non use obligations provided for in Article 16 hereabove.
 
 
 
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19.6
Without limiting the generality of the foregoing, termination or expiration of this Agreement for any reason shall not extinguish any existing claims either of the Parties may have for indemnification and shall not preclude either of the Parties from pursuing any claim for indemnification such Party otherwise may have to the extent that the circumstances giving rise to such claim arose prior to, on or after the date of termination or expiration.
 
19.7
Upon expiration or termination of this Agreement for any reason, DISTRIBUTOR shall:
 
 
19.7.1
subject to Article 19.7.4 hereunder, promptly cease any use and/or exploitation of the Marketing Approval;
 
 
19.7.2
subject to Article 19.7.4 hereunder, promptly cease any use of the Trademark and Patents and not hold itself out as a distributor of the Products;
 
 
19.7.3
subject to Article 19.7.4 hereunder, promptly terminate using the Know-how, the Improvements and the results of the development work carried out in accordance with Article 5.3 hereabove and return or deliver all such materials to HHC without retaining copies, notes, summaries or translations thereof;
 
 
19.7.4
promptly terminate distributing, promoting, marketing and selling the Products onto the market, provided that it shall have, except in case of termination in accordance with Article 4.5 hereabove, a three-month period to sell its existing stock of Products, subject to payment of royalties hereunder. Any stock remaining or returned goods at the expiry of said three months period shall be destroyed by DISTRIBUTOR at DISTRIBUTOR ’S expenses, unless otherwise directed by HHC.
 
20.
ARTICLE 20 - MISCELLANEOUS
 
20.1
Independent contractor status - The status of HHC and DISTRIBUTOR under the business arrangement established by this Agreement is that of independent contractors. DISTRIBUTOR shall perform as an independent contractor in relation to both HHC and DISTRIBUTOR ’S customers and, accordingly, DISTRIBUTOR shall purchase the Products from HHC or HHC’s nominee and resell them to its customers in its own name and for its own account. DISTRIBUTOR has no authority whatsoever to act as an agent or representative of HHC nor any authority or power to contract in the name of or create any liability against or otherwise bind HHC in any way for any purpose, nor shall HHC have such authority or power to so bind DISTRIBUTOR.
 
20.2
Exclusion of compensation for DISTRIBUTOR upon expiration or termination - DISTRIBUTOR hereby expressly waives any right, to the fullest extent admissible under applicable law, relating to compensation for any loss of distribution rights, loss of goodwill or any similar loss, as well as compensation or indemnity for any goodwill which may accrue to HHC as a consequence of the termination or expiration of this Agreement for any reason, except if HHC is in material or persistent breach of its obligations under this Agreement.
 
20.3
Notices - All reports, notices and communications given or made pursuant to this Agreement by one Party to the other shall be validly given or made for all purposes, in the absence of acknowledgement of receipt, on the date of mailing if mailed by registered airmail or by international courier to the addressee Party at the following addresses, respectively:
 
 
 
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HELSINN HEALTHCARE SA
P.O. BOX 357
6915 Pambio-Noranco
SWITZERLAND
For the attention of the Legal Affairs Division
 
 
DARA BIOSCIENCES, INC.
8601 Six Forks Road
Suite 160
Raleigh, NC 27615
United States of America
For the attention of Mr. David Benharris, Vice President, Sales, Marketing and Business Development
 
20.4
Binding Effect - Subject to the provisions of Articles 2.1 and 20.7 herein, this Agreement shall inure to the benefit of, and be binding upon, the respective successors of the Parties.
 
20.5
Waiver - The failure of a Party to insist upon strict performance of any of the terms and conditions of this Agreement by the other Party shall not constitute a waiver of any of the provisions hereof and no waiver by a Party of any of said terms and conditions shall be deemed to have been made unless expressed in writing and signed by such waiving Party.
 
20.6
Interpretation
 
 
20.6.1
The language of this Agreement is English. No translation into any other language shall be taken into account in the interpretation of the Agreement itself.
 
 
20.6.2
The headings in this Agreement are inserted for convenience only and shall not affect its construction.
 
 
20.6.3
Where appropriate, the terms defined in Article 1 hereabove and denoting a singular number only shall include the plural and vice versa.
 
 
20.6.4
References to any law, regulation, statute or statutory provision includes a reference to the law, regulation, statute or statutory provision as from time to time amended, extended or re-enacted.
 
20.7
Assignment - This Agreement and the licences and other rights conferred upon DISTRIBUTOR under this Agreement are personal to DISTRIBUTOR and cannot be transferred, sublicensed, assigned or otherwise disposed of (by operation of law or otherwise) by DISTRIBUTOR without the prior, written authorisation of HHC , which authorisation HHC may withhold in its sole and absolute discretion. Notwithstanding the above, HHC hereby authorizes the assignment of this Agreement to a third party, subject to the terms and conditions set forth in Article 19.3 hereabove. HHC cannot assign or transfer, in whole or in part, this Agreement to any third party without the prior, written authorisation of DISTRIBUTOR, which authorisation shall not be unreasonably withheld or delayed.
 
20.8
Statements to the Public - Neither HHC nor DISTRIBUTOR shall make or procure or permit the making of any announcement or statement to the public with respect to this Agreement, its subject matter or any ancillary matter without the prior consent of the other Party, which consent shall not be unreasonably withheld, subject to any applicable regulatory and/or stock exchange requirements.
 
 
 
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The wording and the timing of any press release or of any other announcement and/or statement to the public shall have to be agreed upon in advance between the Parties.
 
20.9
Expenses - Unless specifically and expressly provided for to the contrary in this Agreement, each of the Parties shall bear its own expenses incurred in connection with the performance of this Agreement.
 
20.10
Survival - The following provisions shall survive expiration or termination of this Agreement for any reason: 1,3.3, 3. 4 , 4.3,4.4, 4.5, 4.9, 4.11,6.7, 6.10, 10.12, 11.1, 12, 13, 16, 19.6, 19.7, 20.1, 20.2, 20.3, 20.5, 20.6, 20.8, 20.10 and 22.
 
21.
ARTICLE 21 - APPENDICES
 
21.1
The following Appendices shall be an integral part of this Agreement:
 
Appendix 1: Products
Appendix 2: List of Know-How Items
Appendix 3: Patents
Appendix 4: Post Marketing Approval Regulatory Activities
Appendix 5: Adverse Events Reporting
Appendix 6: Price
Appendix 7: Promotion and Marketing Activities
 
22.
ARTICLE 22 - LAW TO GOVERN AND ARBITRATION
 
22.1
This Agreement shall be governed by and construed in accordance with the law of Switzerland. The Parties agree to exclude the application of the UN Convention on the International Sales of Goods (CISG) to this Agreement.
 
22.2
Any dispute which may arise between the Parties in connection with this Agreement, which cannot be settled amicably, shall be submitted to arbitration for final decision. The arbitration shall be conducted under the Rules of Arbitration of the International Chamber of Commerce.
 
22.3
The arbitration proceedings shall be held in English language in London, United Kingdom.
 
22.4
The arbitral tribunal shall consist of three arbitrators. Each Party is entitled to nominate one arbitrator. If, within one month after request for arbitration by one Party, the other has not yet appointed an arbitrator, such arbitrator shall be appointed by the International Court of Arbitration of the International Chamber of Commerce on request of the first Party. The two arbitrators shall nominate the chairman of the arbitral tribunal. If they cannot come to terms within one month, the president of the arbitral tribunal shall be nominated by the International Court of Arbitration of the International Chamber of Commerce, on request of the more diligent Party.
 
22.5
The chairman of the arbitral tribunal shall be a lawyer qualified to practise and currently practising as an attorney-at- law or as a judge.
 
22.6
The arbitrators shall not have the power to award or assess punitive damages against either Party.
 
 
 
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23.
ARTICLE 23 - ENTIRETY OF AGREEMENT AND SEVERABILITY
 
23.1
This Agreement supersedes all prior agreements and understandings, whether oral or written, made by either Party or between the Parties and constitutes the entire Agreement of the Parties with regard to the subject matter hereof. It shall not be considered extended, cancelled or amended in any respect unless done so in writing and signed on behalf of the Parties hereto.
 
23.2
The Parties hereby expressly state that it is the intention of neither Party to violate any rule, law and regulations. If any provision of this Agreement is rendered invalid or unenforceable, the Parties agree to renegotiate such provision in good faith and to replace it with valid and enforceable provisions in such a way as to reflect as nearly as possible the intent and purpose of the original provision.
 
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed in duplicate by their duly authorised officers.
 
For and on behalf of
HELSINN HEALTHCARE SA
For and on behalf of
DARA BIOSCIENCES, INC.
/s/ Riccardo Braglia
/s/ David J. Drutz
Riccardo Braglia
David J. Drutz
CEO & Managing Director
Chief Executive Officer
 
 
 
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I.
FIRST APPENDIX
 
To an Agreement between HELSINN HEALTHCARE SA and DARA BIOSCIENCES, INC. dated 7th September 2012.
 
PRODUCTS
 
1.
“GELCLAIR®” box (3-colour print) containing 15 sachets (3-colour print) of 15ml each, inclusive of leaflet, ready for distribution;
 
2.
“GELCLAIR®” box (3-colour print) containing 4 sachets (3-colour print) of 15ml each, inclusive of leaflet, ready for distribution, to be used by DISTRIBUTOR as free medical sample.
 
3.
Other pack sizes or Product presentations, as well as all relevant terms and conditions, may be mutually agreed between the Parties in writing.
 
 
 
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II.
SECOND APPENDIX
 
To an Agreement between HELSINN HEALTHCARE SA and DARA BIOSCIENCES, INC. dated 7th September 2012.
 
LIST OF KNOW-HOW ITEMS
 
 
[***]
 
 
 
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III.
THIRD APPENDIX
 
To an Agreement between HELSINN HEALTHCARE SA and DARA BIOSCIENCES, INC. dated 7th September 2012.
 
PATENTS
 
Title:
Compositions and methods for the treatment or prevention of inflammation
Holder:
Sinclair Pharmaceuticals Ltd., U.K., exclusive licence granted to Helsinn Healthcare SA, Switzerland.
Priority:
28.07.2000 Italy
Patent Number:  
US 6,828,308 granted on 07.12.2004
Expiry Date:
18.07.2021
 
 
 
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IV.
FOURTH APPENDIX
 
To an Agreement between HELSINN HEALTHCARE SA and DARA BIOSCIENCES, INC. dated 7th September 2012.
 
POST MARKETING APPROVAL REGULATORY ACTIVITIES
 
HHC shall perform the post Marketing Approval regulatory activities connected with the Marketing Approval as required by the applicable laws and regulations of the Territory.
 
 
 
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V.
FIFTH APPENDIX
 
To an Agreement between HELSINN HEALTHCARE SA and DARA BIOSCIENCES, INC. dated 7th September 2012.
 
ADVERSE EVENTS REPORTING
 
See enclosed document.
 
 
 
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PROCEDURE FOR GELCLAIR POST MARKETING SURVEILLANCE, ADVERSE EVENTS AND OTHER SAFETY DATA EXCHANGE, NOTIFICATION AND REPORTING BETWEEN HELSINN HEALTHCARE SA AND DARA BIOSCIENCES, INC.
 
1 - PURPOSE
 
1.
The purpose of this procedure is to describe the rules and define the responsibilities which HELSINN HEALTHCARE SA (hereinafter called “HHC”) with DARA BIOSCIENCES, INC. (hereinafter called “Distributor”), will employ to ensure that adverse events notification in the Territory and reporting requirements for the marketed Class II medical device GELCLAIR, a bioadherent oral gel for the management of painful lesions (“the Product”), meet current applicable health agency regulations and guidelines.
 
2.
These procedures describe the system for the notification and evaluation of events occurring following the use of GELCLAIR. These procedures may be amended by the Parties at any time by mutual written agreement (signed and dated) to ensure that they fully and accurately reflect the procedures in place by the Pharmacovigilance departments of the Parties and comply with applicable laws and regulations in the countries in which the Product is marketed. In that regard, upon the written request of either Party, the Parties shall meet to renegotiate in good faith, all or some of these procedures.
 
3.
All adverse events should be available in one single location. DISTRIBUTOR agrees that worldwide safety data/cases relevant to the Product are kept and collected at Helsinn Corporate Drug Safety (hereinafter called “HHC-CDS”), which represents the reference global safety database (ARGUS® Safety Database). Direct access to the global safety database will not be granted to DISTRIBUTOR. However, upon DISTRIBUTOR ’S request, HHC-CDS shall promptly send to DISTRIBUTOR the safety-related information concerning the Product that is contained in the worldwide safety database and is needed by DISTRIBUTOR. HHC-CDS will timely submit to DISTRIBUTOR all safety data that have to be forwarded to Health Authorities according to the European and local legislation.
 
4.
The parties agree to inform the local Health Authorities that DISTRIBUTOR acts as the local distributor of Helsinn. DISTRIBUTOR undertakes to designate a PV- Manager responsible for the transmission of the safety data to the local regulatory authority of the Territory as required by the local legal and regulatory rules for adverse events reporting. His/her name is listed in chapter 8 (Address & Primary Contacts). Any change in this position shall be notified in writing (e.g. by email) to HHC-CDS within 15 calendar days . Such notification does not need a formal amendment to the main agreement.
 
5.
DISTRIBUTOR is responsible to convey to HHC-CDS and local regulatory authority of the Territory, according to the time frame set in this procedure, all safety data relevant to the PRODUCT.
 
6.
HHC-CDS and DISTRIBUTOR promptly shall report to each other any change in applicable legislation or regulations or to the terms of a marketing authorization or approval of which they become aware that might alter their obligations under this procedure.
 
7.
Helsinn accepts that DISTRIBUTOR herewith entrusts its affiliated companies or Sub-Licensees to perform parts of the tasks outlined in this Pharmacovigilance Agreement between Helsinn and DISTRIBUTOR. DISTRIBUTOR will keep Helsinn informed on delegating tasks to any affiliated company or Sub-Licensees. DISTRIBUTOR is responsible of making sure that this workflow is working properly.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
2- DEFINITIONS
 
The terms used in this Agreement shall have the official meanings or definitions as provided by and as further defined or modified by the Applicable Law and Regulatory Authority.
 
“Applicable Law” means the applicable laws, rules, regulations, including any guidelines or other requirements of any Regulatory Authority in the relevant country of any Territory, and industry guidelines or codes of conduct, that may apply to the review and analysis of reportable adverse events, the reporting of adverse events to Regulatory Authorities and the maintenance of records relating to the safety of the Product.
 
The “Manufacturer” is the natural or legal person with responsibility for the design, manufacture, packaging and labeling of a device before it is placed on the market under his own name, regardless of whether these operations are carried out by that person himself or on his behalf by a third party (Article 1, 2(f) of Council Directive 93/42/EEC).
 
The “Competent Authority” is the local national authority with responsibility for Medical Device Vigilance.
 
“Corrective Action” includes, but is not limited to, device recall, issue of advisory notes, additional surveillance/modification of devices in use, modification of design (formulation) or changes to instruction for use.
 
A “Reportable Event” is defined as an event that might lead or has led to the death of a patient, user or other persons or to a serious deterioration of their state of health. It can include a fatality, a life-threatening condition, persistent or permanent impairment of a body function or damage to a body structure, a condition necessitating medical or surgical intervention to prevent persistent or permanent impairment of a body function or damage to a body structure.
 
Reportable adverse events in medical devices may arise due to:
■      Shortcomings in the design or manufacture of the device itself
■      Inadequate instruction for use
■      Inadequate servicing and maintenance
■      Locally initiated modifications or adjustments
■      Inappropriate user practice
■      Inappropriate management procedures
■      Inappropriate environment in which a device is used or stored
■      Selection of the incorrect device for the purpose
 
This list is not definitive and each case should be handled individually.
 
 
3 - COORDINATION RELATING TO PROCEDURE Initial report
The three basic reporting criteria to consider an event to be reportable are:
- 
an event has occurred,
- 
the device is suspected to be a contributory cause of the adverse event,
-
the event led, or might have led to death or to a serious deterioration in the state of health of a patient, user or other person.
 
A serious deterioration in state of health includes:
- 
life-threatening illness;
-
permanent impairment of a body function or permanent damage to a body structure;
-
a condition necessitating medical or surgical intervention to prevent life threatening illness and permanent impairment/damage of a body function/structure
-
any indirect harm as a consequence of an incorrect diagnostic when used within Manufacturer’s instructions
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
- 
fetal distress, fetal death or any congenital abnormality or birth defects
 
In assessing the link between the device and the adverse event, the following should be taken into account:
- 
the opinion, based on available evidence, of healthcare professionals;
- 
the results of the manufacturer’s own preliminary assessment of the event;
- 
evidence of previous, similar events;
- 
other evidences held by the manufacturer.
 
Those events involving particular issues of significant public health concern as determined by the relevant Competent Authority should be reported regardless of exemption criteria. At the same time, those events which are subject to an exemption become reportable to the Competent Authority if a change in trend (usually an increase in frequency) or pattern is identified.
 
Within two (2) calendar days after receipt of notice of a Reportable Event for the Product, irrespective of the source, DISTRIBUTOR shall send to HHC-CDS all the clinically relevant information in English using standard reporting forms with DISTRIBUTOR reference number, including the source documents redacted as necessary. Transmission will be done by e-mail, fax or other agreed/approved electronic system unless the volume of pages is deemed too large for reasonable fax transmission in which case the full set of source documents will be sent by overnight courier service to HHC-CDS who will confirm receipt of documents within one (1) business day. If confirmation is not received the case will be retransmitted the following business day. If Saturday, Sunday or a public holiday is the Date of First Receipt, the case has to be reported on the next business day.
 
 
DISTRIBUTOR shall transmit to HHC-CDS the copy of any safety report relating to the Product within two (2) business days following its submission to local authority.
 
In case of any technical reason or deterioration in the characteristics and/or performance of the Product, as well as any inadequacy in the labelling or the instructions for use DISTRIBUTOR should inform HHC-CDS or HHC-QA or HHC Regulatory Dept.
 
HHC-CDS is responsible for the preparation of event reports in English, which will be sent electronically to DISTRIBUTOR.
 
Reportable Event forms will be transmitted electronically to DISTRIBUTOR within 5 (five) calendar days from the date of notification to HHC-CDS, to be forwarded by DISTRIBUTOR to the local Competent Authorities. In case of serious public health threat HHC-CDS will coordinate its reporting activities with DISTRIBUTOR, in order to maintain the regulatory timelines for reporting.
 
HHC and DISTRIBUTOR shall use English to communicate under and transmit information to one another pursuant to this procedure.
 
 
Follow-up
DISTRIBUTOR shall diligently follow up reports of the Product in compliance with applicable laws and regulations. Follow-up information will follow the same timelines and mechanism as initial information noted above and will include the receipt date for the follow-up information.
 
Final Report
There should be a final report, prepared by HHC-CDS, provided to DISTRIBUTOR for notification to the Competent Authority in the Territory which is a written statement of the outcome of the investigation.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
The Competent Authority after receiving the final report may take actions, for example:
-
no action;
 
additional surveillance or follow-up of devices in use;
-
dissemination of information to users, e.g. by advisory notice;
-
corrective action on future production;
-
corrective action on devices in use;
-
product recall.
 
The Manufacturer will implement all necessary corrective actions in due time and without any delay.
 
Regulatory Query
DISTRIBUTOR shall notify HHC-CDS of any safety related regulatory queries promptly. HHC-CDS will provide the necessary data and will prepare an appropriate report together with DISTRIBUTOR. The exception shall be administrative requests for information related to a single specific case (e.g. an Individual Case Safety Report).
 
 
4 - RECORDS
 
 
1.
Each Party shall establish and maintain the following files:
 
(a)
Sufficient policies and standard operating procedures relating to the collection of information relating to adverse events for the Product, the following up of events information and the maintenance of records relating to events for the Product;
 
(b)
List of the personnel involved in the safety surveillance of the product, and records of training of the personnel related to the Product safety;
 
(c)
Records of its efforts to obtain information relating to adverse events for the Product;
 
(d)
Electronic copies of all paper copies related to a case as well as a suitable back-up of all electronic data will be maintained by DISTRIBUTOR, to guarantee recovery of data in case of disaster;
 
(e)
Retention of all safety records shall be in accordance with all applicable laws, regulations and guidelines and will be for a period of at least twenty- five years.
 
 
2.
Each Party shall make the records described in the above paragraphs normally available to the other Party and to any third party designated by it and acceptable to the other Party, and shall provide copies of these records to HHC-CDS, DISTRIBUTOR or any third party designated by them and acceptable to the other Party within seven 7 (seven) business days of receiving a request for such records.
 
5 - TRAINING
 
Each Party shall ensure that its personnel are trained, within a reasonable period following execution of the Agreement, as necessary to ensure compliance with this procedure.
 
 
6 - VERIFICATION OF COMPLIANCE
 
Audit Activities
Each Party and any designated third party, who is acceptable to the other Party, shall have the right to audit the other Party. The Parties need the right to audit all device- related vigilance activities, data processing and transmission in the Drug Safety Dept. of the other Party in order to monitor the compliance with the agreed procedures. This activity is to be done in accordance with the relevant provisions of the Agreement.
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
7 - LITERATURE REVIEW
 
1.
HHC-CDS will be responsible for reviewing published/unpublished articles obtained as per Standard Operating Procedures. All adverse events identified in the literature will be processed as described in the above sections of this document. Literature articles will be supplied to DISTRIBUTOR upon request.
 
2.
DISTRIBUTOR will forward any literature related to the Product that comes to its attention to HHC-CDS.
 
 
8-ADDRESS
 
Reference address for any safety notifications/transmissions is the following:
 
 
CORPORATE DRUG SAFETY
Research & Development Division
Helsinn Healthcare SA, P.O. Box 357, 6915   Pambio-Noranco (Lugano)
Corporate Drug Safety Unit Fax number
+41 91 985 21 71
Corporate Drug Safety Unit e-mail
drug-safety@helsinn.com
 
For DARA (Starting October 2012)
SafetyCall
3600 American Boulevard, Suite 725 Bloomington, MN 55431
855-830-0242
 

 
HELSINN HEALTHCARE SA
 
DARA BIOSCIENCES, INC.
Diana Koprivec, MD, PhD
Phone: +41 91 985 19 57 dko@helsinn.com
Linda Jett, MSN RN Phone: +1 919-861-0232
ljett@darabio.com
   
   
Chiara Sassi
Phone:+41 91 985 21 21
csa@helsinn.com
David Drutz, MD Phone: +1 919-861-0222
ddrutz @ darabio.com
   
   
Mario Bertazzoli, MD
Head of Corporate Drug Safety +41 91 985 21 21 bm@helsinn.com
Mike Radomsky, PhD Phone: +1 415370-1139
mradomsky @ darabio.com
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
VI.
SIXTH APPENDIX
 
To an Agreement between HELSINN HEALTHCARE SA and DARA BIOSCIENCES, INC. dated 7th September 2012.
 
PRICE
 
 
1.
Product No. 1 (box containing 15 sachets of 15 ml each):
[***] .
2.
Product No. 2 (box containing 4 sachets of 15ml each, to be used by DISTRIBUTOR as free medical   sample):
[***] .
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THIS OMITTED INFORMATION.
 
VII.
SEVENTH APPENDIX
 
To an Agreement between HELSINN HEALTHCARE SA and DARA BIOSCIENCES, INC. dated 7th September 2012.
 
PROMOTION AND MARKETING ACTIVITIES
 
A.
Market environment
1. 
Market definition and characteristics
2.
Main competitors (brand, active ingredient, marketing company, year of introduction, strength and pack size, ex-factory price, daily therapy cost in ex-factory price)
3. 
Marketing mix of main competitors
4. 
Key issues on market and competitive scenario
 
B.
Marketing strategy
1. 
SWOT (Strengths, Weaknesses, Opportunity, Threats) analysis
2. 
Products positioning
3. 
Main point in your marketing strategy
4.
Sales force size, target audience and sales force coverage of target audience and related expenditures
5. 
Main tactics
6. 
Marketing expenses
7. 
Pricing issues
8. 
Phase 4 clinicals trials: protocols, timing
 
C.
Sales forecast
1. 
5-year sales projection in value and units
2. 
Market share
 
D.
Profit and Loss Analysis t value and %)
1.
Gross sales, cost of goods, royalties, Net Sales
 
E.
Final considerations
1. 
Opportunities and critical issues for product launch
2. 
Regulatory matters
3. 
Future needs
 
 
 
Exhibit 4.20
 
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THIS OMITTED INFORMATION.
 
 
COMMERCIALIZATION AGREEMENT
 
 
by and between
 
 
ONXEO S.A.
 
 
(formerly known as BioAlliance Pharma, S.A.)
 
 
and
 
 
DARA BIOSCIENCES, INC.
 
 
Dated as of March 9, 2015
 
 
 
 
 
 
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
SECTION 1. INTERPRETATION AND CONSTRUCTION; DEFINITIONS
1
1.1
Interpretation and Construction
1
1.2
Definitions
2
SECTION 2. RIGHTS AND OBLIGATIONS
9
2.1
NDA Assignment
9
2.2
Trademark Assignment
9
2.3
Commercialization License and Right
10
2.4
Supply Arrangements
10
2.5
Co-Promotion Agreements
10
2.6
Dara Housemark Licenses
11
2.7
Onxeo Retained Rights
11
2.8
Exclusivity
11
2.9
Pre-Agreement Cost
11
2.10
Extension of Territory
12
SECTION 3. ALLIANCE MANAGEMENT
12
3.1
Steering Committee
12
3.2
Costs; Cost Audits
14
SECTION 4.  DEVELOPMENT; MAINTENANCE OF REGULATORY
 
APPROVALS
14
4.1
General
14
4.2
Clinical Activities
14
4.3
Development Responsibilities of Dara
15
SECTION 5. COMMERCIALIZATION
15
5.1
Dara’s Responsibility and Control
15
5.2
Specific Commercialization Rights and Obligations of Dara
15
5.3
Product Launch and Market Coverage
16
5.4
Promotional Activities
17
5.5
Commercialization and Marketing Expenses
17
SECTION 6. PAYMENTS AND REPORTS
17
6.1
Milestone Payment
17
6.2
Additional Payment
18
6.2
Supply Terms
18
6.3
Manner of Payment
18
6.4
Bartering Prohibited
18
 
 
 
 
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
6.5
Taxes and Withholding
18
6.6
Accounting
18
6.7
Record Keeping; Audits
18
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
19
7.1
Representations, Warranties and Covenants of Each Party
19
7.2
Additional Onxeo Representations, Warranties and Covenants
20
7.3
Additional Dara Representations, Warranties and Covenants
21
7.4
Disclaimer
22
SECTION 8. CONFIDENTIAL INFORMATION
22
8.1
General
22
8.2
Exceptions
23
8.3
Permitted Disclosures
23
8.4
Confidential Terms
23
8.5
Equitable Remedies
24
SECTION 9. INDEMNIFICATION; LIMITATION OF LIABILITY
24
9.1
Indemnification by Dara
24
9.2
Indemnification by Onxeo
24
9.3
Procedure for Indemnification for Third Party Claims
25
9.4
Assumption of Defense
26
9.5
Insurance
26
9.6
Remedies Relating to the Vestiq Bankruptcy
26
9.7
Limitation of Liability
27
SECTION 10. TERM AND TERMINATION
27
10.1
Term
27
10.2
Termination. In addition to any other provision of this Agreement
expressly providing for termination of this Agreement:
27
10.3
No Waiver
28
10.4
Effects of Termination
28
SECTION 11. REGULATORY MATTERS
30
11.1
Regulatory Activities in the Territory
30
11.2
Communications and Meetings with Governmental Authorities
30
11.3
Regulatory Information
31
11.4
Pharmacovigilance
32
11.5
Record Keeping
33
11.6
Events Affecting Integrity or Reputation
33
SECTION 12. INTELLECTUAL PROPERTY
33
 
 
 
 
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
12.1
Onxeo Intellectual Property Prosecution and Maintenance
33
12.2
Infringement by Third Parties; Validity Challenges
34
12.3
Infringement of Third Party Rights
35
12.4
Access to Onxeo Know-How
35
SECTION 13. MISCELLANEOUS
35
13.1
Independent Contractor
35
13.2
Registration and Filing of this Agreement
35
13.3
Notices
36
13.4
Binding Effect; No Assignment
36
13.5
No Implied Waivers; Rights Cumulative
37
13.6
Severability
37
13.7
Force Majeure
37
13.8
Amendment
38
13.9
Rules of Construction
38
13.10
Publicity
38
13.11
Publications
38
13.12
Expenses
39
13.13
Governing Law; Submission to Jurisdiction; Waiver
39
13.14
Entire Agreement
39
13.15
Third Party Beneficiaries
39
13.16
Rights in Bankruptcy
40
13.17
Corruption
40
13.18
Counterparts; Signatures
40
13.19
Schedules
40
SCHEDULE 1 ONXEO PATENTS
43
SCHEDULE 2 ORAVIG TRADEMARK
44
SCHEDULE 3 SUPPLY AGREEMENT
45
SCHEDULE 4 INITIAL PURCHASE ORDER (4.1) AND MANUFACTURING
 
FORECAST (4.2)
46
SCHEDULE 5 COMMERCIALIZATION PLAN
47
SCHEDULE 6 ALLOCATION OF ANNUAL FDA ESTABLISHMENT AND
 
PRODUCT FEES
48
 
 
 
 
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THIS OMITTED INFORMATION.
 
COMMERCIALIZATION AGREEMENT
 
 
This COMMERCIALIZATION AGREEMENT (together with any Schedules hereto, this “ Agreement ”‘ ) is entered into as of March 9, 2015 (the “ Effective Date ”) by and between Onxeo S.A. (formerly known as “BioAlliance Pharma, S.A.”), a French company with an address at 49 boulevard du General Martial Valin, 75015 Paris, 1 st floor, France (“ Onxeo ”), and DARA Biosciences, Inc., a Delaware corporation with an address at 8601 Six Forks Road, Suite 160, Raleigh, North Carolina 27615, USA (“ Dara ”).
 
Onxeo and Dara are sometimes referred to hereinafter individually as a “ Party ” and collectively as the “ Parties .”
 
RECITALS:
 
A.             Onxeo owns proprietary technology and rights related to a gingival muco-adhesive, orally dissolving tablet of miconazole, sold under the trademark “ORAVIG®” (“Oravig”) (the “ Product ”, as further defined below).
 
B.             Dara is a pharmaceutical company specializing in the provision of oncology supportive care products.
 
C.             Dara desires to acquire the exclusive right to commercialize the Product in the Territory (as defined below) and Onxeo is willing to grant such right to Dara, and to license to Dara certain of Onxeo’s proprietary technology, pursuant to the terms and subject to the conditions set forth in this Agreement, including Dara’s agreement to obtain supplies of Product exclusively from Onxeo (unless otherwise provided, as set forth below).
 
D.             In consideration of the mutual representations, warranties and covenants contained herein, the Parties agree as follows:
 
 
SECTION 1. INTERPRETATION AND CONSTRUCTION; DEFINITIONS
 
 
1.1             Interpretation and Construction . The headings of Sections in this Agreement are provided for convenience only and shall not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement shall be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided in this Agreement, the word “including” does not limit the preceding words or terms and shall be deemed to be followed by the words “without limitation.” Unless otherwise expressly provided in this Agreement, the terms “shall have responsibility for”, “shall be responsible for” or the like, shall be deemed to be followed by “and shall be obligated to duly carry out such responsibility.” All approvals or consents required hereunder shall not be unreasonably delayed, denied or conditioned. All references to “dollars” shall be to the lawful currency of the United States of America.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMMITTED INFORMATION.
 
1.2             Definitions . As used herein, the following terms shall have the following meanings:
 
1.2.1                 “Act” means, as applicable, the United States Federal Food, Drug, and Cosmetic Act of 1938, as amended (21 U.S.C. §§ 301 et seq.).
 
1.2.2                 “ Adverse Drug Experience ” / “ Serious Adverse Drug Experience ” means any of: an “adverse drug experience,” a “life-threatening adverse drug experience,” a “serious adverse drug experience,” or an “unexpected adverse drug experience,” as those terms are defined in 21 C.F.R. §314.80 and any other applicable regulations promulgated by the FDA, as related to the use of the Product which requires reporting to a Regulatory Authority. It includes any adverse experience associated with the use of a drug in humans, whether or not considered drug related, including any failure of expected pharmacological action and any adverse experience occurring (i) in the course of the use of a drug product in professional practice, (ii) from drug overdose, whether accidental or intentional, (iii) from drug abuse or (iv) from drug withdrawal.
 
1.2.3                 “ Affiliate ” of a Person means any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such first Person. “Control” and, with correlative meanings, the terms “controlled by” and “under common control with,” shall mean to possess the power to direct the management or policies of a Person, whether through: (a) direct or indirect beneficial ownership of fifty percent (50%) or more of the voting interest in such entity; (b) the right to appoint fifty percent (50%) or more of the directors of such entity; or (c) by contract or otherwise. The Parties acknowledge and agree that under no circumstances shall the term “Affiliate” as defined herein mean as to either Party, for any purpose, any (i) Venture Entity having, directly or indirectly, an interest in or controlling, alone or with others, such Party, or (ii) other Persons in which such Venture Entity have an interest or are controlled by, controlling or are under common control with such Person, unless such Party directly possesses the power to control and direct management of such other Persons.
 
1.2.4                 “ Agreement ” has the meaning set forth in the Preamble of this A greement.
 
1.2.5                 “ Annual Net Sales ” means the total Net Sales (as defined in Section 1.2.45) of the Product in the Territory for a given Calendar Year (or any part thereof, as applicable in the given context) in which Product is sold.
 
1.2.6                 “ API ” means the active pharmaceutical ingredient miconazole, including any and all forms thereof.
 
1.2.7                 “ Applicable Law ” means all laws, rules and regulations, including any rules, regulations, guidelines, or other requirements of Regulatory Authorities, applicable to the Commercialization or Supply of the Product, as the case may be, that may be in effect from time to time in the Territory.
 
1.2.8                 “ Bankruptcy Code ” has the meaning set forth in Section 13.16.
 
1.2.9                 “ Business Day ” means any day on which banking institutions in New York, New York, United States and in France are open for business.
 
1.2.10                 “ Calendar Quarter ” means the three month period in any given calendar year ending on March 31, June 30, September 30 and December 31.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMMITTED INFORMATION.
 
1.2.11                 “ Calendar Year ” means each successive period of twelve (12) months commencing on January 1 and ending on December 31.
 
1.2.12                 “ Certificate of Analysis ” means a certificate evidencing the analytical tests conducted on a specific lot of Product reflecting that such Product and any Raw Materials used therein conform to the relevant Specifications and applicable regulations and setting forth, inter alia , the items tested and test results, and accompanied by all documentation required by Applicable Law and/or a Regulatory Authority to Commercialize the Product in the Territory.
 
1.2.13                 “Certificate of Compliance ” means a certificate evidencing that the Product delivered to Dara was manufactured in accordance with cGMP and any applicable Regulatory Approvals.
 
1.2.14                 “ cGCP ” means the applicable regulatory requirements for current good clinical practices promulgated by the FDA under 21 C.F.R., as the same may be amended from time to time.
 
1.2.15                 “ cGLP ” means the applicable regulatory requirements for current good laboratory practices promulgated by the FDA under 21 C.F.R. § 58, as the same may be amended from time to time.
 
1.2.16                 “ cGMP ” means the applicable regulatory requirements for current good manufacturing practices promulgated by the FDA under 21 C.F.R. §§210 and 211, as the same may be amended from time to time.
 
1.2.17                  “ Change of Control ” means (a) approval of any transaction or series of transactions (including, without limitation, any sale of capital stock, merger, reorganization, consolidation or similar transaction) in which the holders of the outstanding capital stock of Dara as of the Effective Date hold less than fifty percent (50%) of the outstanding capital stock of Dara following such transaction(s); or (b) approval of a complete liquidation of Dara or a sale or disposition of all or substantially all of the assets of Dara related to the Commercialization of the Product.
 
1.2.18                  “ Commercialization ” means any and all activities directed to importing, receiving, warehousing, marketing, promoting, distributing, offering for sale and selling the Product, but shall in no event include the manufacture of, making or having made the Product, except as may be expressly provided for herein. When used as a verb, “ Commercialize ” means to engage in Commercialization.
 
1.2.19                  “ Commercialization Plan ” has the meaning set forth in Section 5.2.

1.2.20                  “ Co-promotion Agreement ” shall mean a sublicense, distribution or co-promotion agreement entered into between Dara or any of its Affiliates and a Co-promotion Partner, as part of Commercialization efforts undertaken by Dara.
 
1.2.21                  “ Co-promotion Partner ” means a Third Party with whom Dara or any of its Affiliates has entered into a Co-promotion Agreement to use, sell, offer for sale, import or otherwise Commercialize the Product in accordance with this Agreement.
 
 
 
 
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1.2.22                  “ Commercially Reasonable Efforts ” means, with respect to a Party, the efforts and resources which would be used (including, without limitation, the promptness in which such efforts and resources would be applied) by that Party relating to a certain activity or activities, which are equivalent to the general level of effort and resources which would be used in the pharmaceutical industry by a company similar in size and scope, with respect to a product having a similar market potential and at a similar stage in life cycle, taking into account, as applicable, the competitiveness of the marketplace and any legal and regulatory issues involved, the profitability of the applicable products and other relevant factors, including technical, legal, scientific, medical, sales performance, and/or marketing factors and at least consistent with its normal business practices, if they include a higher level of effort or resources.
 
1.2.23                 “ Confidential Information ” has the meaning set forth in Section 8 .1.
 
1.2.24                   “ Dara ” has the meaning set forth in the Preamble to this Agreement. Dara shall also include its Affiliates and Co-promotion Partners, as the context may require.
 
1.2.25                  “ Dara Claims ” has the meaning set forth in Section 9.2.
 
1.2.26                  “ Dara Housemark ” means collectively the name and logo of Dara or any of its Affiliates.
 
1.2.27                 “ Dara Indemnitee ” has the meaning set forth in Section 9.1.
 
1.2.28                  “ Development ” means drug development activities which occur as a condition set forth by the FDA as post-Regulatory Approval requirements for the NDA #22-404 or are required to keep the NDA in good standing and which are not related to formulation or manufacturing, including performing pediatric studies and submitting product safety reports as required by the FDA. In the event that the Territory is extended to include Canada, “Development” shall include any drug development activities required by the relevant Regulatory Authority in Canada with respect to obtaining and maintaining a Regulatory Approval from such Regulatory Authority, including, among other things, clinical studies, regulatory filing submissions and approvals, and regulatory affairs related to the foregoing. When used as a verb, “ Develop ” means to engage in Development.
 
1.2.29                 “ Development Plan ” has the meaning set forth in Section 4.3.
 
1.2.30                 “ Disclosing Party ” has the meaning set forth in Section 8.1
 
1.2.31                 “ Drug Product ” means a “ drug product” as defined in 21 C.F .R. § 314. 3 for administration to human subjects and “API” as defined in ICH Q7.
 
1.2.32                 “ Effective Date ” has the meaning set forth in the Preamble of this Agreement.
 
1.2.33                 “ FDA ” means the United States Food and Drug Administration, and any of its successor agencies or departments.
 
1.2.34                 “ First Commercial Sale ” means the first sale of the Product in an arm’s length transaction to a Third Party by Dara or its Affiliates or its Co-promotion Partners within the Territory.
 
1.2.35                  “ Force Majeure ” has the meaning set forth in Section 13.6.
 
 
 
 
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1.2.36                 “ GAAP ” means United States generally accepted accounting principles, consistently applied.
 
1.2.37                  “ Indemnitee ” has the meaning set forth in Section 9.3.1.
 
1.2.38                  “ Indemnitor ” has the meaning set forth in Section 9.3.1.
 
1.2.39                 “ Indication ” means all indications for Oravig approved from time to time by the competent Regulatory Authority(ies) within the Territory. For avoidance of doubt, the currently approved indication is for oropharyngeal candidiasis (oral thrush) in humans.
 
1.2.40                  “ Intellectual Property ” means all: (a) patents, patent applications including provisional applications and statutory invention registrations, including reissues, divisions, continuations, continuations-in-part, and reexaminations, all inventions disclosed therein (collectively, “ Patents ”): (b) copyrightable works, copyrights in works of authorship of any type, including computer software and industrial designs, registrations and applications for registration thereof; (c) trade secrets, know-how, processes, specifications, product designs, manufacturing information, engineering and other manuals and drawings, standard operating procedures, flow diagrams, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, safety, quality assurance, quality control and clinical data, technical information, data, research records, supplier lists and similar data and information and other material, and confidential or proprietary technical, business and other information, and all rights in any jurisdiction to limit the use or disclosure thereof with respect to the Supply or Commercialization of the Product in the Territory as provided herein (collectively, “ Know-How ”): (d) as further provided in Section 12.2, rights to sue and recover damages or obtain injunctive relief for infringement, or misappropriation thereof; and (e) trademarks, trade names, logos, trade dress and other indicia for source of goods or services, in each case to the extent owned or controlled by Onxeo and necessary or reasonably useful to Supply or Commercialize the Product in the Territory as provided herein. Intellectual Property of Onxeo shall not include any items or rights of any entity that becomes an Affiliate of Onxeo after the Effective Date.
 
1.2.41                 “ Losses ” means any and all damages (including all incidental, consequential, statutory and treble damages except as otherwise specifically limited in this Agreement), awards, deficiencies, settlement amounts, defaults, assessments, fines, dues, penalties, costs, fees, liabilities, obligations, taxes, liens, losses, lost profits and expenses (including, without limitation, court costs, interest and reasonable fees of attorneys, accountants and other experts) incurred by or awarded to a Party or a Third Party and required to be paid to such Party or Third Party with respect to such Party’s or Third Party’s claim by reason of any judgment, order, decree, stipulation or injunction, or any settlement entered into in accordance with the provisions of this Agreement, together with all documented out-of-pocket costs and expenses incurred in complying with any judgments, orders, decrees, stipulations and injunctions that arise from or relate to such claim.
 
1.2.42                 “ Marketing Expenses ” means all costs and expenses incurred in connection with the Commercialization of the Product in the Territory, including, without limitation: (a) marketing, advertising, sampling, and promotional activities; (b) marketing studies; (c) primary and secondary market research; (d) promotional materials; and (e) samples. Marketing Expenses shall not include any deductions allowed under the definition of Net Sales.
 
1.2.43                 “ Milestone ” means the milestone events set forth in Section 6.1.
 
 
 
 
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1.2.44                 “ NDA ” means the approved new drug application for the Product under NDA #22-404, including the related investigational new drug (IND) application, all amendments and supplements thereto and all documentation submitted to the FDA in connection therewith.
 
1.2.45                 “ Net Sales ” means the quarterly gross invoiced sales of a Product sold by Dara or its Affiliates or Co-promotion Partners in arm’s length sales to Third Parties less the following deductions that are actually incurred, allowed, paid, accrued or specifically allocated to such Third Party by Dara, to the extent actually taken by such Third Party, on such sales: (i) customary trade, quantity or volume discounts and cash discounts and allowances, cash incentive payments (e.g., slotting allowance), administrative, marketing and similar fees to the extent of the amount payable by Dara to such Third Party or applied as a deduction to the amount being paid by such Third Party to Dara; (ii) customary and reasonable credits, rebates and chargebacks (including those to managed-care entities and government agencies including Medicare and Medicaid), retroactive price adjustments and other price reduction programs customary to the trade or required by law, and co-pay reimbursements; (iii) allowances or credits to customers on account of rejections or returns (including, but not limited to, wholesaler and retailer returns) or on account of retroactive price reductions affecting the Product; (iv) the value of unsalable Product destroyed by Dara (including expired Product that was initially accepted by Dara); (v) commercially reasonable write-offs for uncollected accounts; and (vi) wholesaler fee for service, to the extent of the amount payable by Dara to such Third Party or applied as a deduction in the amount being paid by such Third Party to Dara, and sales and excise taxes; provided , however , where any such discount (or similar adjustment to Net Sales) is based on sales of a bundled set of products in which the pertinent product is included, the discount shall be allocated among such products on a pro rata basis based upon the sales value (i.e. the unit average selling price multiplied by the unit volume) of each product relative to the sales value contributed by the other constituent products in the bundled set, with respect to such sale. All such deductions shall be taken without duplication and determined on an accrual basis in accordance with GAAP, provided, however, that any amount subsequently reversed shall be included as part of Net Sales.
 
1.2.46                 “ Onxeo ” has the meaning set forth in the Preamble to this Agreement.
 
1.2.47                 “ Onxeo Claims ” has the meaning set forth in Section 9.1.
 
1.2.48                 “ Onxeo Indemnitee ” has the meaning set forth in Section 9.2.
 
1.2.49                  “ Onxeo Intellectual Property ” means any and all Patents, Know-How and Regulatory Approvals owned or controlled by Onxeo or its Affiliates and which is reasonably necessary to Supply or Commercialize the Product as provided for herein and that Onxeo can disclose or license to Dara as provided herein without breaching an obligation to, or incurring a payment obligation to, a Third Party, unless otherwise expressly provided in this Agreement.
 
1.2.50                 “ Onxeo Patents ” shall mean the Patents set forth on Schedule 1.
 
1.2.51                 “ Onxeo Retained Rights ” has the meaning set forth in Section 2.7.
 
 
 
 
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1.2.52                 “ OPDP ” means the FDA’s Office of Prescription Drug Promotion.
 
1.2.53                 “ Orange Book ” means the FDA’s publication entitled “Approved Drug Products with Therapeutic Equivalence Evaluations.”
 
1.2.54                  “ Oravig Trademark ” means the United States registration of the name and logo as identified on Schedule 2 attached hereto and made a part hereof.
 
1.2.55                 “ Party ” or “ Parties ” has the meaning set forth in the Preamble to this Agreement.
 
1.2.56                  “ Person ” means an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or other legal entity or organization, including a government or political subdivision, department or agency of a government.
 
1.2.57                  “ Product ” means any pharmaceutical product (i) containing the API as an active pharmaceutical ingredient for administration to the oral mucosa, formulated using Onxeo’s proprietary Lauriad™ oral tablet delivery system, or combining the API and any other antifungal, formulated using Onxeo’s proprietary Lauriad™ oral tablet delivery system and (ii) approved under the ND A, as of the Effective Date, in either case, as such product may be modified as development proceeds and including all formulations, presentations and modes of administration thereof.
 
1.2.58                  “ Raw Materials ” has the meaning set forth on Schedule 3.
 
1.2.59                  “ Receiving Party ” has the meaning set forth in Section 8.1.
 
1.2.60                 “ Regulatory Approval ” means any approvals (including applications therefore, supplements and amendments thereto and pricing and reimbursement approvals), licenses, registrations or authorizations of any Regulatory Authority, necessary for the Commercialization, Supply, manufacture, testing, labeling, packaging, or shipping of the Product in the Territory, including the NDA for the Product.
 
1.2.61                 “ Regulatory Authority ’” means any national, regional, state, provincial or local regulatory agency, department, bureau, commission, council or other governmental authority in the Territory involved in the granting of approvals (including pricing and reimbursement approvals), licenses, registrations or authorizations for the marketing, sale, manufacturing, testing, labeling, packaging, shipping or supply of drug products, including the FDA.
 
1.2.62                 “ Sample Price ” has the meaning set forth on Schedule 3.
 
1.2.63                 “ Specifications ” means the written specifications for, components, finished Product, API, excipients, packaging and Raw Materials mutually agreed upon by the Parties including, without limitation, the expiry period of such components, Product, API, excipients, packaging and Raw Materials as set forth in the NDA for the Product. The Specifications and any modifications or supplements thereto, as are mutually agreed in writing by the Parties from time to time after the Effective Date and during the Term, are hereby incorporated by reference in this Agreement.
 
 
 
 
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1.2.64                 “ Steering Committee ” has the meaning set forth in Section 3.1.1.
 
1.2.65                 “ Supply ” means the manufacture, processing, testing, storing, labeling and packaging (as specified in this Agreement) for sale and delivery of the Product. When used as a verb, “ Supply ” means to engage in Supply.
 
1.2.66                 “ Supply Agreement ” shall mean the agreement for the Supply of the Product to be entered into by the Parties substantially in the form of Schedule 3.
 
1.2.67                 “ Supply Price ” has the meaning set forth on Schedule 3.
 
1.2.68                 “ Supply Terms ” shall mean the terms and conditions for the Supply of the Product by Onxeo to Dara, as set forth in the Supply Agreement.
 
1.2.69                 “ Term ” has the meaning set forth in Section 10.1.
 
1.2.70                 “ Territory ” means the United States of America and may be extended to include Canada as provided in Section 2.10.
 
1.2.71                 “ Third Party ” means any Person other than Onxeo and Dara, their respective Affiliates and Dara’s Co-promotion Partner(s).
 
1.2.72                 “ Third Party Claim ” has the meaning set forth in Section 9.3.1.
 
1.2.73                 “ Unit ” shall mean packs of fourteen (14) tablets of Product for trade and of two (2) tablets as physicians’ samples of Product duly packaged and released.
 
1.2.74                 “ Venture Entity ” shall mean a Person for which its primary business is the investment of capital in other Persons, and shall explicitly exclude any Person which markets, sells, promotes, develops or manufactures Drug Products and any Person for which its primary business is owning or controlling Intellectual Property.
 
1.2.75                  “ Vestiq ” has the meaning set forth in Section 9.6.
 

 
SECTION 2 . RIGHTS AND OBLIGATIONS
 

 
2.1                  NDA Assignment . Onxeo hereby assigns to Dara, and Dara hereby accepts an assignment of, all of Onxeo’s right, title and interest in the NDA . Onxeo hereby transfers all right, title and interest in and to the NDA to Dara and, as soon as practicable and in no event later than thirty (30) Business Days after the execution of the Agreement, Onxeo shall send an NDA transfer letter to the FDA acknowledging such transfer. The NDA shall be held in the name of Dara; provided, however, the NDA may be transferred to one of Dara’s Affiliates subject to the prior agreement of Onxeo and the acceptance of all of the rights and obligations of Dara hereunder (and without limitation on Dara’s obligations hereunder, which shall remain in effect).
 
 
 
 
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2.2                  Trademark Assignment . Onxeo hereby assigns to Dara (or to such Affiliate of Dara as Dara may designate), and Dara (or such Affiliate) accepts, an assignment of all of Onxeo’s right, title and interest in the Oravig Trademark, together with that part of the goodwill of Onxeo’s business associated with and symbolized by the Oravig Trademark, including any applications, registrations, renewals and extensions thereof for the Oravig Trademark, and all other corresponding rights at common law or otherwise that are or may be secured under the laws of the Territory, now or hereafter in effect, together with all rights to collect royalties and proceeds in connection with any of the foregoing and all rights to sue for past, present or future infringement, misappropriation or other violation of the foregoing, and all rights to recover damages or lost profits in connection therewith. For avoidance of doubt, the assigned rights, title and interest do not include any rights, title or interest existing in the ORAVIG mark or domain name outside of the Territory.
 
2.3                  Commercialization License and Right . Onxeo hereby grants to Dara and its Affiliates, and Dara and its Affiliates accept, an exclusive (even as to Onxeo and its Affiliates) and non-transferable (except as permitted under Section 13.4) license under the Onxeo Intellectual Property and an exclusive commercial distribution right to use, sell, offer for sale, import or otherwise Commercialize the Product for the Indication solely in the Territory, in accordance with the terms of this Agreement. Under the license and right to Commercialize the Product in the Territory as provided in this Agreement, Dara or any of its Affiliates may enter into one or more Co-Promotion Agreements with one or more Co-promotion Partners, as more fully provided in Section 2.5.

2.4                  Supply Arrangements . Onxeo hereby agrees to Supply the Product to Dara for sale in the Territory pursuant to the Supply Agreement. Dara hereby agrees to procure the Product for sale in the Territory solely from Onxeo, and solely on the Supply Terms. The initial purchase order for the Product associated with the commencement of Commercialization of the Product by Dara hereunder is attached hereto as Schedule 4.1 and Dara’s initial Manufacturing Forecast (as defined in the Supply Agreement) is attached hereto as Schedule 4.2; each shall be deemed submitted to Onxeo on the Effective Date. As provided in the Supply Agreement, should Onxeo determine that it will no longer Supply the Product to Dara, Onxeo shall deliver to Dara twelve (12) months’ prior notice of such cessation of Supply. During such notice period, and for three (3) months thereafter, Onxeo shall provide Dara with reasonable consultation and technical assistance in order to ensure Supply without interruption of the Product to Dara for sales in the Territory, and assist with a transfer of manufacturing technology controlled by Onxeo to a manufacturing facility designated by Dara, provided that Dara shall be responsible for any and all out-of-pocket expenses incurred in this respect. Onxeo hereby authorizes Dara to negotiate during such notice period with Onxeo’s Third Party contract manufacturer(s) with respect to a commercial supply arrangement to ensure the continuity of Supply of the Product; provided, however, that if no viable alternative supplier can be qualified in a timely manner to ensure uninterrupted supply of Product then Dara shall have the right to terminate this Agreement upon the provision of written notice to Onxeo.
 
 
 
 
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2.5                  Co-Promotion Agreements . Dara may enter into one or more Co-Promotion Agreement(s) with Third Party Co-promotion Partners to Commercialize the Product in the Territory; provided, however, that Dara (a) obtains the prior written approval of Onxeo with respect to the identity and qualifications of the Co-promotion Partner and the terms and conditions of the Co-promotion Agreement, such approval not to be unreasonably withheld, delayed or denied by Onxeo, and (b) will at all times remain responsible to Onxeo for the timely and complete performance of all of its obligations under this Agreement and for the timely and complete performance by its Co-promotion Partners of the obligations under this Agreement for which they are given responsibility. Each such Co-Promotion Agreement shall be consistent with the material terms of this Agreement. The terms and conditions of Section 10.4.7 shall be properly reflected in the Co-Promotion Agreement. Dara shall, during the Term of this Agreement, at all times ensure the timely and complete observance and performance by every Co-promotion Partner of the provisions of each Co-promotion Agreement and shall indemnify Onxeo against any Losses which are awarded against, or incurred by Onxeo as a result of any material breach by any Co-promotion Partner of any of the material terms and conditions of a Co-promotion Agreement. Dara shall further be solely responsible for supplying the Product to its Co-promotion Partners, such supplies of the Product to be obtained solely from Onxeo on the terms and conditions provided in Section 2.4. Dara shall provide Onxeo with a copy of each such Co-promotion Agreement it enters into within fifteen (15) Business Days after its signature by Dara and its Co-promotion Partner. In particular, a Co-Promotion Agreement for the purpose of Commercializing the Product to general practitioners in the Territory shall be signed at the same time as this Agreement, and effective as of the Effective Date or as soon thereafter as practicable.
 
2.6                  Dara Housemark Licenses . Dara hereby grants to Onxeo, and Onxeo accepts, a non-exclusive license to use the Dara Housemark solely in conjunction with the labeling and specified packaging of Product for Commercialization in the Territory and solely as such is approved by Dara, which shall be non-transferable except for limited sublicenses to packaging subcontractors for the sole purpose of packaging activities.
 
2.7                  Onxeo Retained Rights . Any rights of Onxeo not expressly granted to Dara under the provisions of this Agreement, including with respect to any Intellectual Property owned or controlled by Onxeo or any of its Affiliates, shall be retained by Onxeo (“Onxeo Retained Rights”). In furtherance of the foregoing and not in limitation thereof, Onxeo shall retain the right: (a) to exploit the Onxeo Intellectual Property to Develop, Supply and Commercialize the Product outside the Territory and to Supply the Product in the Territory as provided herein, without any duty to account to Dara or obtain Dara’s consent for such exploitation, subject to Section 2.3; (b) to carry-out its obligations under this Agreement; and (c) to exploit the Onxeo Intellectual Property for purposes outside of the Product, without any duty to account to Dara or obtain Dara’s consent for such exploitation, subject to Section 2.3. Onxeo covenants and agrees not to enforce the Onxeo Retained Rights against Dara, its Affiliates and Co-promotion Partners.
 
2.8                  Exclusivity . Except as set forth in this Agreement, the Parties agree that they shall not, directly, or indirectly (whether through an Affiliate, Third Party or otherwise), in or for the Territory during the Term, make, have made, use, develop, import/export, register, file, promote, market, manufacture, distribute, offer to sell, sell or otherwise Commercialize to any Third Party the Product or any product the principal active ingredient of which is the API, or assist any Third Party in the foregoing. Onxeo covenants and agrees with Dara that during the Term Onxeo will not grant to any Third Party any license or similar right with respect to the Product for sale in the Territory and will use Commercially Reasonable Efforts to enforce against any Third Party to which Onxeo has granted rights with respect to the Product for sale outside of the Territory any prohibitions included in the agreements with respect to such grant that limit or restrict sales of the Product in the Territory.
 
2.9                  Pre-Agreement Cost . For the avoidance of doubt, Dara shall not, by reason of this Agreement, assume any responsibility for any returns, chargebacks, and other charges related to Product sold by Onxeo’ s marketing partners before execution of this Agreement.
 
 
 
 
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2.10                  Extension of Territory . Until the fifth (5 th ) anniversary of the Effective Date, Dara shall have the right to extend the scope of the Territory to include Canada by delivery to Onxeo of a written notice to this effect. If Dara elects to exercise this right, Dara shall file for a marketing authorizations) from a Regulatory Authority of the relevant jurisdiction within six (6) months after the effective date of such notice and shall thereafter use Commercially Reasonable Efforts to obtain the said marketing authorization from such Regulatory Authority. Should Dara elect to extend the scope of the Territory as set forth above, no additional payment shall be due to Onxeo solely by reason of such extension, without limitation on the payment terms set forth in Section 6. For the avoidance of doubt, for the purpose of calculating any Milestone payments to be made to Onxeo by Dara under this Agreement, Net Sales shall be calculated by taking into account Net Sales in Canada, if the Territory is so extended. Dara shall be solely responsible for any and all costs incurred in connection with obtaining such marketing authorization. In the event that the relevant Regulatory Authority requires clinical trials as part of the product approval in Canada, Dara shall not conduct any clinical trials without first obtaining Onxeo’s prior approval, such approval not to be unreasonably withheld, delayed or denied. Onxeo shall cooperate fully in respect of Dara’s efforts in filing for and obtaining marketing authorization(s) by furnishing Dara with copies of all available relevant documents and information, with any related out-of-pocket costs to be invoiced by Onxeo to Dara as pass-though (but not more frequently than once per Calendar Quarter) and paid by Dara to Onxeo within sixty (60) days after receipt of such invoice.
 
 
SECTION 3. ALLIANCE MANAGEMENT
 
 
3.1                   Steering Committee .
 
3.1.1                  Establishment . The Parties hereby establish a committee (the “ Steering Committee ” ) which shall provide a forum for open communication between the Parties regarding Commercialization activities, any and all pediatric studies required by Regulatory Authorities in the United States, any Development activities required by Regulatory Authorities in Canada, and any development activities undertaken by Onxeo outside the Territory concerning the Product which may have an impact on the license and rights granted to Dara hereunder. The Steering Committee shall consist of such even number of individuals as shall be agreed by the Parties, fifty percent (50%) of whom shall be Dara designees and fifty percent (50%) of whom shall be Onxeo designees. Each Party shall have the right at any time and from time to time to designate a replacement, on a permanent or temporary basis, for any or all of its previously-designated members of the Steering Committee. Each Party shall appoint one of its designees of the Steering Committee to serve as alliance manager to manage the overall collaboration and to oversee the Steering Committee. The alliance managers from both Parties will provide project updates for the Product at all meetings of the Steering Committee. The Steering Committee will be co-chaired by the Chiefs Executive Officers of both Parties. The Steering Committee shall meet in person or via teleconference at least once per Calendar Year, and more frequently as mutually agreed by the Parties, on such dates, and at such times, as the Parties shall agree; provided , however , that the Parties shall cause the first meeting of the Steering Committee to occur within sixty (60) days after the Effective Date. The annual Steering Committee meeting shall be organized by both Parties alternatively, in their premises or at any neutral location they will designate, provided that such location is convenient for both Parties. The alliance manager of the Party organizing the meeting shall send a notice and agenda for each meeting of the Steering Committee to all members of the Steering Committee reasonably in advance of the meeting. The Party hosting any Steering Committee meeting shall appoint one person (who need not be a member of the Steering Committee) to attend the meeting and record the minutes of the meeting in writing. Such minutes shall be circulated to the members of the Steering Committee in a time frame to be agreed upon by the Steering Committee after the meeting and the members agree to review and comment on such minutes in a time frame to be agreed upon by the Steering Committee. The Parties agree to use reasonable efforts to promptly finalize any dispute regarding minutes of any meeting.
 
 
 
 
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3.1.2                  Decisions . All decisions of the Steering Committee shall be made by unanimous vote or unanimous written consent of both Parties, with each Party having, collectively among its respective designees, one vote in all decisions. The members of the Steering Committee shall decide all matters assigned to the Steering Committee under this Agreement or otherwise referred to it by mutual written agreement of the Parties; provided . however, that if the members of the Steering Committee are unable to make a decision by unanimous vote, it is agreed by the Parties that Dara shall have sole final decision making for commercial questions solely related to the sale of the Product in the Territory and that Onxeo shall have sole final decision making for questions, notably Development issues, which can be demonstrated to have an impact on the global strategy of Onxeo for the Product and on the business or obligations of its other licensees for the Product outside the Territory, providing, however, that Onxeo may not impose costs on Dara in addition to those expressly required to be borne by Dara hereunder.
 
3.1.3                  Purposes and Powers . The Steering Committee shall meet in order (a) to examine the compliance of each of the Parties with their contractual obligations; (b) to discuss, facilitate and coordinate the exchange of information between the Parties; (c) to discuss and review regulatory strategies, reimbursement strategies, pricing strategies for Canada in the event the Territory is extended to include it, labeling strategies and related activities for the Product in the Indication in the Territory; (d) to prepare and approve a plan for Commercialization developed in connection with the foregoing clauses; and (e) to have such other responsibilities as may be mutually agreed in writing by the Parties from time to time.
 
3.1.4                  Information . Dara agrees to keep the Steering Committee reasonably informed in respect of its Commercialization of the Product in the Territory pursuant to its authority and responsibility set forth in Section 5.1, and in particular Dara shall: (a) provide the Steering Committee with copies of Dara’s annual Product marketing plans, information regarding Dara’s Commercialization strategy, and updates regarding the foregoing and the progress of Dara’s Commercialization activities; (b) promptly advise the Steering Committee of any unforeseen material problems or delays encountered since the date of its last report in connection with the Commercialization activities; and (c) provide Onxeo as soon as reasonably practicable with such other documentation and information as Onxeo’s Steering Committee members may reasonably request in writing from time to time with respect to the status of the Commercialization activities and progress. Dara’s marketing plan will, at a minimum, include details on market share projections, deployment and coverage details, patient/prescriber feedback, and reimbursement status, strategies and rates.
 
3.1.5                  Expenses . Each Party shall be responsible for all travel and related costs and expenses for its members and approved invitees to attend meetings of, and otherwise participate in, the Steering Committee.
 
 
 
 
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3.2                    Costs; Cost Audits . In the event that either Party has the right, under this Agreement, to cause the other Party to incur costs in connection with the performance of such other Party’s obligations hereunder, the obligation to incur such costs shall be limited to such costs as are (a) reasonably necessary to achieve the purpose thereof, and (b) are determined on an arms-length basis. The Parties shall keep books and accounts of record in connection with such costs necessary for verification thereof, for a period of at least three (3) years after the end of the Calendar Year in which they were incurred. No more than once every Calendar Year, upon reasonable notice, an independent auditor designated by a Party, and reasonably acceptable to the other Party, shall have the right to examine the other Party’s records concerning such costs; provided, however, that once any period of records has been reviewed by an independent auditor designated by the other Party, such records shall not be subject to additional reviews except for good cause. All costs and expenses of such auditor incurred in connection with performing any such audit shall be paid by the Party performing such audit unless such audit discloses a material breach of the obligations of the audited Party under this Agreement, in which case the audited Party shall bear such costs and expenses.
 
SECTION 4. DEVELOPMENT; MAINTENANCE OF REGULATORY APPROVALS
 
4.1                  General . Dara shall:
 
4.1.1                  Maintain the Product in compliance in all material respects with all requirements of Applicable Law;
 
4.1.2                  Maintain records, which shall be complete and accurate in all material respects and shall fully and properly reflect all expenses, in connection with the of the Product;
 
4.1.3                  Complete, at its sole expense, any and all pediatric studies required as a condition of the continuing Regulatory Approval of the NDA; and
 
4.1.4                  Complete, at its sole expense, any and all Development activities required for the extension of the Territory to include Canada.
 
4.2                  Clinical Activities . Dara shall be solely responsible for conducting, at its sole expense, the pediatric study required by the FDA under the Pediatric Research Equity Act as specifically detailed in the NDA approval. Onxeo shall provide such reasonable assistance and cooperation as may be required in order to assist Dara in the fulfillment of the foregoing and shall not seek reimbursement of any out-of-pocket costs it incurs in connection therewith. Onxeo shall provide any necessary clinical trial supplies of the Product at the prices set forth in the Supply Agreement, and Dara shall reimburse Onxeo for the out-of-pocket cost Onxeo actually incurs of any and all required modifications thereto (e.g., modified labeling or packing) , with such costs being billed as pass-through costs without markup.
 
4.3                  Development Responsibilities of Dara . Dara shall at its cost have overall responsibility for the performance of the following activities (the “ Development Plan ”): (a) maintenance of the Product’s approved NDA and preparation and filing of any supplements thereto necessary for Commercialization of the Product; (b) preparing and submitting periodic product safety reports; (c) making all required “OPDP” submissions; (d) filing of any post-marketing obligations required by the FDA; and (e) developing and implementing a pharmacovigilance and medical information program. From and after Onxeo’s transfer to Dara of Onxeo’s right, title and interest in and to the NDA, Dara shall be responsible and pay for all of the costs and expenses incurred in connection with its obligations under this Section 4.3, including any and all taxes or fees relating to the NDA. The annual FDA establishment and product fees for the one (1) SKU of the Product shall be allocated between the Parties as set forth in Schedule 6. Dara shall own any and all regulatory filings and approvals which it completes and obtains for the Product in the Territory. Any responsibility of Dara under this Section 4.3 shall be Dara’s sole responsibility and Onxeo shall be prohibited from taking any actions in connection therewith, other than as may be necessary to preserve its rights in the event of a failure of Dara to perform its obligations after having received a demand from Onxeo. Onxeo shall have the right to access, use and reference the NDA, including any and all data and other information directly relating thereto, solely for the purpose of developing and obtaining Regulatory Approvals to market and sell Product outside of the Territory. Dara agrees to provide similar use of the NDA to Onxeo’s partners outside of the Territory as reasonably requested by Onxeo. Onxeo shall be responsible for all costs and expenses related to its access, use and reference to the NDA as contemplated by this Section 4.3.
 
 
 
 
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SECTION 5. COMMERCIALIZATION
 
5.1                  Dara’s Responsibility and Control . Except as otherwise expressly set forth herein, Dara shall have responsibility for all Commercialization activities for the Product in the Territory, including developing strategies and tactics related to the advertising, promotion, pricing, marketing and selling of the Product. Dara shall have final decision-making authority and primary responsibility for all Commercialization strategies, plans and activities regarding the Product in the Territory. Dara shall comply and shall require all of its Affiliates and Third Party agents, subcontractors and Co-promotion Partners, if any, to comply, with all Applicable Laws in Commercializing the Product in accordance with this Agreement. Dara shall at all times comply and shall require all of its Affiliates and Third Party agents, subcontractors and Co-promotion Partners, if any, to comply with the requirements of the approved labeling for the Product as maintained by Onxeo and, in particular, shall not make any claims for the Product, or Commercialize the Product, in a manner that is inconsistent with the approved labeling.
 
5.2                  Specific Commercialization Rights and Obligations of Dara . Dara shall use Commercially Reasonable Efforts to Commercialize the Product to all segments of the market for the Product (including in particular the specialist and general practitioner segments) in a manner consistent with the then-current Commercialization plan (the “ Commercialization Plan ”; as set forth in Schedule 5) and at all times consistent with Applicable Laws. Such Commercialization Plan shall include, without limiting the foregoing, forecasts, sales, customers, SWOT and market reviews, sales and market share objectives, sales force objectives, detailing position, sales and promotion methods and programs and key product data. Without limiting the generality of the above, the Commercialization Plan shall also address the following topics: (a) the targeting of key opinion leaders in the Territory, (b) the investment of time and resources to build a network of product advocates in the local medical community, (c) the timely recruitment and maintenance of an adequate and properly incentivized sales force with the type and amount of incentives which are reasonably calculated to ensure an adequate effort to Commercialize the Product in accordance with its approved labeling, (d) the investment in appropriate marketing tools which would allow the collection of the data necessary for the efficient assessment of the activities of competitors and of customers’ needs, and (e) the implementation in the Territory of a management system to track the quality of targeting and the frequency and the quality of the coverage of selected targets. The first Commercialization Plan shall be discussed and agreed by the Parties during the first meeting of the Steering Committee. Subsequently, the Commercialization Plan for a Calendar Year shall be provided once annually to Onxeo during the fourth Calendar Quarter of the previous Calendar Year, to   be   discussed and approved (such approval not to be unreasonably delayed, denied or conditioned) during the next meeting of such Steering Committee. Subject to any conditions or limitations expressly set forth herein, it shall   be Dara’s sole right and responsibility to: (a) develop advertising and promotional materials related to the Product; (b) book sales for the Product; (c) handle all returns of the Product; (d) handle all aspects of order processing, invoicing and collection of receivables for the Product; (e) collect data regarding sales to hospitals and other end users of the Product; (f) monitor inventory levels of the Product; (g) provide first line customer support and pharmacovigilance; (h) warehouse the Product; and (i) determine the prices for the Product and any discounts and rebates that may be offered thereto, including decisions relating to customer allowances and credits. The implementation of the Commercialization Plan shall be within Dara’s sole decision-making authority and control, and the activities of any Affiliates or Third Party agents, subcontractors or Co-promotion Partners of Dara shall be attributed to Dara for the purpose of determining whether Dara’s obligations with respect to Commercialization have been satisfied.
 
 
 
 
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5.3                  Product Launch and Market Coverage . Provided there are no regulatory or legal disputes or issues related to the Commercialization of the Product and provided the Product has been delivered to Dara according to the purchase order and to the terms of this Agreement then Dara will begin active Commercialization of the Product in all major market segments no later than six (6) months after the Effective Date. During the first eighteen (18) months after the First Commercial Sale, Dara shall maintain a minimum of twenty (20) full time equivalents in its sales and marketing functions for the Product covering the principal cancer treatment centers in the major metropolitan areas of the Territory. Dara’s Co-promotion Partner shall maintain a minimum of twenty-four (24) full time equivalents to serve the general practitioner market, each of whom shall have the background, training and knowledge required to facilitate the successful Commercialization of the Product in the Territory. Should a generic equivalent product be approved by the Regulatory Authority, and Dara provides reasonable evidence that the generic equivalent product has achieved a unit market share of ten percent (10%) or more, the minimum full time equivalent requirement shall be waived and Dara shall have the right to terminate this Agreement upon the provision of written notice to Onxeo, in which case Onxeo shall, on Dara’s first request by notice, cancel previously placed purchase orders for the Product, provided , however , that Dara shall advance to Onxeo any costs, determined on a pass-through basis, reasonably incurred by Onxeo in connection with the cancellation of such orders.
 
5.4                  Promotional Activities . Dara will be responsible for all branding activities for the Product. Onxeo shall provide Dara with samples of all relevant marketing materials in its possession relating to Oravig for use during the Term. Onxeo shall in particular provide Dara with (a) templates for sales brochures, posters, training materials and any other advertising materials generated for the Oravig Trademark and (b) access to the primary and secondary packaging artwork. Dara shall have the right to make such use of the advertising materials provided by Onxeo hereunder as Dara shall see fit, in its sole discretion, subject to any copyrights or other rights held by any Third Party, for which rights Dara shall have the sole responsibility to negotiate and/or enter into agreements allowing such use.
 
5.5                  Commercialization and Marketing Expenses . Dara shall be responsible and pay for one hundred percent (100%) of the Marketing Expenses for the Product in the Territory including the costs and expenses incurred in connection with Dara’s responsibilities under this Section 5.

SECTION 6. PAYMENTS AND REPORTS
 
6.1                  Milestone Payment . A one-time non-refundable and non-creditable payment will be due from Dara to Onxeo in consideration of Dara’s achievement of the following Net Sales milestone achieved in the first five (5) full Calendar Years following the Effective Date (a “ Milestone ”):
 
 
 
 
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Milestone
Milestone Payment
(U.S. Dollars)
Annual Net Sales reach [***]
[***]
Annual Net Sales reach [***]
[***]
Annual Net Sales reach [***]
[***]
 
 
Dara may reduce its first Milestone payment due hereunder by the amount expended by Dara in providing replacement product inventory to wholesalers in the Territory as contemplated in that certain letter agreement between the Parties dated March 9, 2015 and executed contemporaneously herewith. Payment by Dara of a Milestone payment shall be made within sixty (60) days after the close of the Calendar Year in which the Milestone is achieved. Should more than one Milestone be achieved during a single Calendar Year, only the Milestone payment of the highest amount shall be paid for that specific year. The aggregate Milestone payments with respect to the first five (5) full Calendar Years following the Effective Date shall not exceed [***] .
 
6.2                  Additional Payment . In addition to the Milestone Payments in Section 6.1, Dara shall pay to Onxeo [***] of any upfront, milestone or similar amounts when and as received from its Co-Promotion Partner(s) if, and to the extent, that the aggregate payments received by Dara from its Co-promotion Partner(s) under the Co-promotion Agreement(s) less any amounts Dara is contractually obligated to pay to Co-Promotion Partner(s) in connection with Commercialization of the Product, exceed [***] .

6.3                  Supply Terms . Onxeo shall Supply the Product to Dara in accordance with the terms and conditions set forth in the Supply Agreement.

6.4                  Manner of Payment . All sums due under this Agreement shall be payable in dollars by bank wire transfer of immediately available funds to such bank account(s) as Onxeo shall designate. Dara shall notify Onxeo as to the date and amount of any such wire transfer to Onxeo at least two (2) Business Days prior to such transfer. All overdue amounts due to Onxeo hereunder shall bear interest at the rate equal to one percent (1.0%) per month or at the highest rate permitted by law, whichever is less. The payment of such interest shall not prevent Onxeo from exercising any other rights it may have as a consequence of the lateness of any payment.

6.5                  Bartering Prohibited . Dara and its Affiliates, Co-promotion Partners and Third Party subcontractors shall not solicit or accept any goods or services in exchange for the sale or transfer of the Product.

6.6                  Taxes and Withholding . All payments under this Agreement will be made without any deduction or withholding for or on account of any tax, duties, levies, or other charges unless such deduction or withholding is required by Applicable Law. If Dara is so required to deduct or withhold, Dara will: (a) notify Onxeo of such requirement in writing; (b) pay to the relevant authorities the full amount required to be deducted or withheld promptly upon the earlier of determining that such deduction or withholding is required; and (c) forward to Onxeo an official receipt (or certified copy) or other documentation reasonably acceptable to Onxeo evidencing such payment to such authorities. Dara will cooperate with Onxeo to establish any document allowing for the application of a reduced withhold tax rate or necessary to obtain a credit or other reduction in taxes, to the fullest extent permitted under the American-French tax treaty or applicable laws or regulations.
 
 
 
 
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6.7                  Accounting . All financial terms and standards defined or used in this Agreement for sales or activities occurring in the Territory shall be governed by and determined in accordance with GAAP, including the calculation of Net Sales; provided that when the actual results become known relative to any accrued amount, any difference between the actual results and the accrual is reported and accounted for in the next payment due hereunder (subject to customary processing periods).

6.8                  Record Keeping; Audits . With respect to the books and accounts of Dara and its Affiliates which pertain to the first five (5) years of this Agreement following the First Commercial Sale of Product, Dara and its Affiliates shall keep books and accounts of record in connection with Net Sales of the Product in sufficient detail to permit accurate determination of all figures necessary for verification of the Milestone for which payment is to be made hereunder. Dara, its Affiliates and its Co-promotion Partners shall maintain such records for a period of at least three (3) years after the end of the Calendar Year in which they were generated; provided, however , that if any records are in dispute and Dara has received written notice from Onxeo of the records which are in dispute, Dara, its Affiliates and its Co-promotion Partners shall keep such records until the later of one (1) year as of such notice or until such dispute is resolved. No more than once every calendar year, upon reasonable notice to Dara, an independent auditor designated by Onxeo and reasonably acceptable to Dara shall have the right to examine Dara’s (or its Affiliates’ or Co-promotion Partners or subcontractors’) records to determine the correctness of the Milestone payment to be made to Onxeo under the terms of this Agreement. All costs and expenses of such auditor incurred in connection with performing any such audit shall be paid by Onxeo unless such audit discloses that a Milestone payment was not timely paid when due in accordance with Section 6.1, in which case Dara shall bear such costs and expenses; provided, however, that once a period of time has been reviewed by an independent auditor pursuant to this Section, such books and records shall not be subject to a subsequent review without a showing of good cause reasonably acceptable to Dara.  
 
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
 
7.1                  Representations. Warranties and Covenants of Each Party . Each Party hereby represents, warrants and covenants to the other Party as follows:
 
7.1.1                  Such Party: (a) is duly formed and in good standing under the laws of the jurisdiction of its formation; (b) has the power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; and (c) has taken all necessary action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of such Party and constitutes a legal, valid and binding obligation of such Party and is enforceable against it in accordance with its terms subject to the effects of bankruptcy, insolvency or other laws of general application affecting the enforcement of creditor rights and judicial principles affecting the availability of specific performance and general principles of equity, whether enforceability is considered a proceeding at law or equity.
 
7.1.2                  All necessary consents, approvals and authorizations of all Regulatory Authorities and other Persons required to be obtained by such Party in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder have been obtained.
 
 
 
 
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7.1.3                  The execution and delivery of this Agreement, the performance of such Party’s obligations hereunder, and any actions or omissions of such Party related to the activities contemplated hereunder and the circumstances surrounding this Agreement: (a) do not and will not conflict with or violate any Applicable Law or any provision of the articles of incorporation, bylaws or other governing charter documents of such Party; and (b) do not and will not conflict with, violate, or breach, or constitute a default or require any consent under, any contractual obligation or court or administrative order by which such Party is bound.
 
7.1.4                  Each Party agrees not to engage in any action that is in violation or inconsistent with the terms and conditions of this Agreement or that interferes with the consummation of the transactions contemplated under this Agreement.
 
7.2                  Additional Onxeo Representations. Warranties and Covenants . Onxeo represents, warrants and covenants to Dara as follows:
 
7.2.1                  Onxeo exclusively owns or has the right to license or use as provided herein the Onxeo Intellectual Property and, except as expressly provided herein, shall continue to do so during the Term. To the extent Onxeo has any payment or diligence obligations in regard to the Onxeo Intellectual Property, all such payment and diligence obligations are current and fully satisfied up to and as of the Effective Date, and during the Term Onxeo shall continue to make royalty payments due to Third Parties in connection with the Onxeo Intellectual Property, if any. Onxeo has not received any written notice of any Third Party Claim alleging infringement or misappropriation of any Intellectual Property of any Third Party related to the Onxeo Intellectual Property or the Supply or Commercialization of the Product, in each case solely as concerns the Territory, and, to the knowledge of the management of Onxeo, without independent investigation, there are no circumstances or conditions in existence as of the Effective Date that would reasonably be expected to give rise to a claim that the Onxeo Intellectual Property or the Supply or Commercialization of the Product, in each case solely as concerns the Territory, infringes any Intellectual Property of any Third Party or that Onxeo has misappropriated any Intellectual Property of any Third Party related to the Onxeo Intellectual Property or the Supply or Commercialization of the Product in the Territory.
 
7.2.2                  Onxeo and its Affiliates have the right to grant the licenses granted to Dara under Section 2.3.
 
7.2.3                  Neither Onxeo nor any of its Affiliates is a party to or otherwise bound by any oral or written contract or agreement that will result in any Third Party obtaining any interest in, or that would give to any Third Party any right to assert any claim in or with respect to, any of Dara’s rights under this Agreement.
 
7.2.4                  Onxeo exclusively owns all right, title and interest in and to the NDA as of the Effective Date. As of the Effective Date, all fees owing to the FDA relating to the Product, including annual Establishment Fees and Product Fees, have been paid and are current except to the extent specifically set forth in Schedule 6.
 
7.2.5                  During the Term Onxeo shall and shall cause its subcontractors to comply with and maintain in force all licenses, consents, permits and authorization which may be required with respect to the facility where the Supply of the Product is carried out, including without limitation, licenses and permits issued or required by all Regulatory Authorities and those required in relation to the generation, storage, treatment, transport, possession, handling and disposal of any waste and Onxeo shall Supply Product in compliance with all such licenses, consents, permits and authorization.
 
 
 
 
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7.2.6                  Onxeo shall not during the Term in the Territory: (a) Supply (either directly or indirectly) or arrange for the Supply of Product to any Affiliate of Onxeo or any Third Party or for Onxeo’s own account in the Territory, other than for sale to Dara or for sale outside of the Territory; or (b) manufacture Product for the account of any Third Party besides Dara or its Affiliates or Co-promotion Partners or their permitted Third Party designees for distribution in the Territory.
 
7.2.7                  The Product shall: (a) be supplied in accordance with the Specifications and cGMP; (b) be in conformity with the applicable Specifications, applicable Regulatory Approval, Applicable Law and the Certificate of Analysis; and (c) be in dosage form labeled, packaged and tested for commercial sale in the Territory and title to such Product shall pass to Dara as provided herein free and clear of any security interest, lien or other encumbrance.
 
7.2.8                  During the Term, Onxeo shall not use the Onxeo Retained Rights in a manner which is reasonably calculated to adversely affect the license granted to Dara hereunder.
 
7.3                  Additional Dara Representations. Warranties and Covenants . Dara further represents, warrants and covenants to Onxeo that:
 
7.3.1                  During the Term, Dara shall comply with and maintain in force all licenses, consents, permits and authorizations necessary to perform its obligations under this Agreement.
 
7.3.2                  Dara and its Affiliates and Co-promotion Partners have the necessary experience, facilities, finances and personnel to perform the obligations of Dara hereunder, and is prepared timely to complete pre-launch and launch activities and Commercialize the Product to all material market segments in the Territory as provided herein. Dara has conducted the due diligence and other investigations and reviews it considers necessary prior to entering into this Agreement. It has utilized its own scientific, marketing and distribution expertise and experience to analyze and evaluate both the scientific and commercial value of the Product and has relied solely on such analysis and evaluations in deciding to enter into this Agreement.
 
7.3.3                  Neither Dara nor any of its Affiliates is a party to or otherwise bound by any oral or written contract or agreement that will be violated by the signature or performance of this Agreement or will result in any Third Party obtaining any interest in, or that would give to any Third Party any right to assert any claim in or with respect to, any of Dara’s or Onxeo’s rights under this Agreement.
 
7.3.4                  During the Term, Dara shall not directly or indirectly, and shall cause its Affiliates and its Co-promotion Partners not to directly or indirectly, develop, market and/or sell an alternative tablet or extended release product containing the API, or enter into any agreement or arrangement or otherwise engage in any activities relating to the foregoing.
 
7.3.5                  With respect to Commercialization of the Product, Dara agrees to expend efforts therefor using no less than the level of diligences it would typically employ for a product having similar commercial potential developed by Dara itself and for which it does not owe a royalty or similar payment obligation to a Third Party. Dara shall cause to include a comparable provision(s) in each Co-promotion Agreement into which it enters.
 
 
 
 
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7.4                  Disclaimer . EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH HEREIN, NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A WARRANTY OR REPRESENTATION BY ONXEO: (A) THAT THE PRODUCT IS OR WILL BE FREE FROM INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADEMARKS, INDUSTRIAL DESIGN OR OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY; (B) REGARDING THE EFFECTIVENESS, VALUE, SAFETY, NON-TOXICITY OF THE PRODUCT OR ANY INFORMATION OR RESULTS PROVIDED BY ONXEO PURSUANT TO THIS AGREEMENT, OR (C) REGARDING THE ABILITY OF DARA TO COMMERCIALIZE THE PRODUCT IN THE TERRITORY OR THE ADEQUACY OR SUFFICIENCY OF THE ASSETS OR RIGHTS GRANTED HEREUNDER FOR SUCH PURPOSE. EXCEPT AS SET FORTH HEREIN, ONXEO HEREBY DISCLAIMS, AND DARA HEREBY WAIVES, RELEASES AND RENOUNCES, ALL WARRANTIES, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT IN THE PRODUCT PROVIDED HEREUNDER OR THE API INCLUDED THEREIN, INCLUDING, BUT NOT LIMITED TO, (I) ANY IMPLIED WARRANTY OF MERCHANTABILITY, ABSENCE OF HIDDEN DEFECTS (WITHOUT LIMITATION ON PROVISIONS OF THE SUPPLY AGREEMENT) OR FITNESS FOR A PARTICULAR PURPOSE, OR (II) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE.
 
SECTION 8. CONFIDENTIAL INFORMATION
 
8.1                  General . Pursuant to the terms of this Agreement, each of Onxeo and Dara (in such capacity, the “ Disclosing Party ”) has disclosed and will be disclosing to the other Party, and to the officers, directors, employees, agents and/or representatives of each (in such capacity, the “ Receiving Party ”) certain secret, confidential or proprietary data, Intellectual Property and related information, including, without limitation, operating methods and procedures, marketing, manufacturing, distribution and sales methods and systems, sales figures, pricing policies and price lists and other business information (“ Confidential Information ”). Without limiting the foregoing, it is acknowledged that the Onxeo Intellectual Property shall constitute the Confidential Information of Onxeo (subject to Section 8.2). The Receiving Party shall make no use of any Confidential Information of the Disclosing Party except in the exercise of its rights and the performance of its obligations set forth in this Agreement. The Receiving Party: (a) shall keep and hold as confidential, and shall cause its officers, directors, employees, agents and representatives to keep and hold as confidential, all Confidential Information of the Disclosing Party; and (b) shall not disclose, and shall cause its officers, directors, employees, agents and representatives not to disclose, any Confidential Information of the Disclosing Party. Confidential Information disclosed by the Disclosing Party shall remain the sole and absolute property of the Disclosing Party, subject to the rights granted in this Agreement or Applicable Law.
 
8.2                  Exceptions . The above restrictions set forth in Section 8.1 on the use and disclosure of Confidential Information shall not apply to any information which: (a) is already known to the Receiving Party at the time of disclosure by the Disclosing Party, as demonstrated by competent proof (other than as a result of prior disclosure under any agreement between the Parties with respect to confidentiality); (b) is or becomes generally known or available to the public other than through any act or omission of the Receiving Party in breach of this Agreement; (c) is acquired by the Receiving Party from a Third Party who is not directly or indirectly under an obligation of confidentiality to the Disclosing Party with respect to same, or (d) is developed independently by the Receiving Party without the use, direct or indirect, of the Disclosing Party’s Confidential Information. In addition, nothing in this Section 8 shall be interpreted to limit the ability of either Party to disclose its own Confidential Information to any other Person on such terms and subject to such conditions as it deems advisable or appropriate.
 
 
 
 
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
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8.3                  Permitted Disclosures . It shall not be a breach of Section 8.1 if a Receiving Party discloses Confidential Information of a Disclosing Party: (a) pursuant to Applicable Law, including securities laws applicable to a public company, to any Regulatory Authority or pursuant to the procedures, listing standards or agreements of any national or international securities exchange or the NASDAQ Stock Market or the EURONEXT Stock Market or other governmental authority; or (b) for regulatory filings and/or patent prosecution for the Product, or (c) in a judicial, administrative or arbitration proceeding to enforce such Party’s rights under this Agreement; provided , however , that the Receiving Party (i) provides the Disclosing Party with as much advance written notice as possible of the required disclosure, (ii) reasonably cooperates with the Disclosing Party in any attempt to prevent, limit or seek confidential treatment for the disclosure and (iii) discloses only the minimum amount of Confidential Information necessary for compliance; or (d) to its Affiliates or its Co-promotion Partners (and potential Co-promotion Partners), employees, consultants, agents or other Third Parties in connection with performance of activities contemplated by this Agreement or to Third Parties in connection with due diligence or similar investigations by such Third Parties, provided, in each case, that any such Affiliate, Co-promotion Partner (or potential Co-promotion Partner), employee, consultant, agent or Third Party agrees to be bound by terms of confidentiality and non-use comparable in scope to those set forth in this Section 8.
 
8.4                  Confidential Terms . Each Party acknowledges and agrees that the terms and conditions of this Agreement shall be considered Confidential Information of each Party and shall be treated accordingly. Notwithstanding the foregoing, each Party acknowledges and agrees that the other may be required to disclose some or all of the information included in this Agreement in order to comply with its obligations under securities laws applicable to a public company or the procedures, the listing standards or agreements of any national or international securities exchange, and hereby consents to such disclosure to the extent deemed advisable or appropriate by its respective counsel (but only after consulting with the other Party to the extent practicable). The Parties may also disclose the existence of this Agreement and terms thereof to their directors, investors, officers, employees, attorneys, accountants and other advisers on a need to know basis and may, upon obtaining a written confidentiality agreement, further disclose the existence and terms of this Agreement to Third Parties to whom it may be relevant in connection with financings, acquisitions and similar transactions.
 
8.5                  Equitable Remedies . Each Party specifically recognizes that any breach by it of this Section 8 may cause irreparable injury to the other Party and that actual damages may be difficult to ascertain, and in any event, may be inadequate. Accordingly (and without limiting the availability of legal or equitable, including injunctive, remedies under any other provisions of this Agreement), each Party agrees that in the event of any such breach, the other Party shall be entitled to seek injunctive relief and such other legal and equitable remedies as may be available.
 
 
 
 
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SECTION 9. INDEMNIFICATION; LIMITATION OF LIABILITY
 
9.1                  Indemnification by Dara . Dara shall defend, indemnify and hold harmless Onxeo and its Affiliates and each of their respective officers, directors, shareholders, employees, successors and assigns (each, “ Dara Indemnitee ”) from and against all Third Party Claims and all Losses to which a Dara Indemnitee may become subject, to the extent such Third Party Claims or Losses arise out of: (a) the gross negligence or willful misconduct of Dara or any of its Affiliates or Co-promotion Partners or subcontractors in performing any of Dara’s obligations under this Agreement; or (b) a material breach by Dara or any of its Affiliates or Co-promotion Partners or subcontractors of any of Dara’s representations, warranties, covenants or agreements under this Agreement; or (c) the Commercialization of the Product in the Territory (“Onxeo Claims”); provided, however , that in all cases referred to in this Section 9.1, Dara shall not be liable to indemnify, defend or hold harmless any Dara Indemnitee for any Onxeo Claims to the extent that such Onxeo Claims arise out of: (i) the gross negligence or willful misconduct or intentional wrongdoing of any Dara Indemnitee; or (ii) any breach by any Dara Indemnitee of Onxeo’s representations, warranties, covenants or agreements under this Agreement or the Supply Agreement.
 
9.2                   Indemnification by Onxeo . Onxeo shall defend, indemnify and hold harmless Dara, its Affiliates and their Co-promotion Partners and each of their respective officers, directors, shareholders, employees, successors and assigns (each, “Onxeo Indemnitee”) from and against all Third Party Claims and all Losses to which an Onxeo Indemnitee may become subject to the extent such Third Party Claims or Losses arise out of: (a) the gross negligence or willful misconduct of Onxeo or any of its Affiliates in performing any of its obligations under this Agreement; or (b) a material breach by Onxeo or any of its Affiliates of any of its representations, warranties, covenants or agreements under this Agreement or the Supply Agreement; or (c) the Commercialization of the Product outside of the Territory (“Dara Claims”); provided, however, that in all cases referred to in this Section 9.2, Onxeo shall not be liable to indemnify, defend or hold harmless any Onxeo Indemnitee for any Dara Claims to the extent that such Dara Claims arise out of (i) the gross negligence or willful misconduct or intentional wrongdoing of any Onxeo Indemnitee or (ii) any breach by any Onxeo Indemnitee of Dara’s representations, warranties, covenants or agreements under this Agreement.
 
9.3                  Procedure for Indemnification for Third Party Claims .
 
9.3.1                  Notice . In the case of a claim made by any Person who is not a Party to this Agreement (or an Affiliate or Co-promotion Partner thereof) as to which a Party (the “ Indemnitor ”) may be obligated to provide indemnification pursuant to this Agreement (a “ Third Party Claim ”), such Party seeking indemnification hereunder (the “ Indemnitee ”) will notify the Indemnitor in writing of the Third Party Claim (and specifying in reasonable detail the factual basis for the Third Party Claim and to the extent known, the amount of the Third Party Claim) promptly after becoming aware of such Third Party Claim; provided , however, that failure to give such notification will not affect the indemnification provided hereunder except to the extent the Indemnitor shall have been actually and materially prejudiced as a result of such failure.
 
 
 
 
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9.3.2                  Defense of Claim . If a Third Party Claim is made against an Indemnitee, the Indemnitor will be entitled, within thirty (30) days after receipt of written notice from the Indemnitee of the commencement or assertion of any such Third Party Claim, to assume the defense thereof by providing written notice to Indemnitee of its intention to assume the defense of such Third Party Claims within such thirty (30) day period (at the expense of the Indemnitor) with counsel selected by the Indemnitor and reasonably satisfactory to the Indemnitee for so long as the Indemnitor is conducting a good faith and diligent defense. Should the Indemnitor so elect to assume the defense of a Third Party Claim, the Indemnitor will not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided, however , that if under applicable standards of professional conduct a conflict of interest exists between the Indemnitor and the Indemnitee in respect of such claim, such Indemnitee shall have the right to employ separate counsel to represent such Indemnitee with respect to the matters as to which a conflict of interest exists and in that event the reasonable fees and expenses of such separate counsel shall be paid by such Indemnitor; provided , further , that the Indemnitor shall only be responsible for the reasonable fees and expenses of one separate counsel for such Indemnitee. If the Indemnitor assumes the defense of any Third Party Claim, the Indemnitee shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnitor. If the Indemnitor assumes the defense of any Third Party Claim, the Indemnitor will promptly supply to the Indemnitee copies of all correspondence and documents relating to or in connection with such Third Party Claim and keep the Indemnitee informed of developments relating to or in connection with such Third Party Claim, as may be reasonably requested by the Indemnitee insofar as it directly relates to the Third Party Claims (including, without limitation, providing to the Indemnitee on reasonable request updates and summaries as to the status thereof). If the Indemnitor chooses to defend a Third Party Claim, all Indemnitees shall reasonably cooperate with the Indemnitor in the defense thereof (with reasonable and properly substantiated out-of-pocket expenses to be reimbursed by the Indemnitor, including reasonable legal fees and expenses, of the Indemnitee). If the Indemnitor does not elect to assume control by written acknowledgement of the defense of any Third Party Claim within the thirty (30) day period set forth above, or if such good faith and diligent defense is not being or ceases to be conducted by the Indemnitor, the Indemnitee shall have the right, at the expense of the Indemnitor, after three (3) Business Days’ written notice to the Indemnitor of its intent to do so, to undertake the defense of the Third Party Claim for the account of the Indemnitor (with counsel selected by the Indemnitee), and to compromise or settle such Third Party Claim, exercising reasonable business judgment.
 
9.3.3                  Settlement of Claims . If the Indemnitor acknowledges in writing its obligation to indemnify the Indemnitee for a Third Party Claim, the Indemnitee will agree to any settlement, compromise or discharge of such Third Party Claim that the Indemnitor may recommend that by its terms obligates the Indemnitor to pay the full amount of Losses (whether through settlement or otherwise) in connection with such Third Party Claim and unconditionally and irrevocably releases the Indemnitee completely from all Losses in connection with such Third Party Claim; provided , however , that, without the Indemnitee’s prior written consent, the Indemnitor shall not consent to any settlement, compromise or discharge (including, without limitation, the consent to entry of any judgment), that provides for injunctive or other nonmonetary relief affecting the Indemnitee.
 
9.4                   Assumption of Defense . Notwithstanding anything to the contrary contained herein, an Indemnitee shall be entitled to assume the defense of any Third Party Claim with respect to the Indemnitee upon written notice to the Indemnitor pursuant to this Section 9, in which case, the Indemnitor shall be relieved of liability under Section 9.1 or 9.2, as applicable, solely for such Third Party Claim and related Losses.
 
9.5                   Insurance . Dara shall obtain and/or maintain, at its sole cost and expense, general liability coverage appropriate to its activities with reputable and financially secure insurance carriers to cover its activities related to this Agreement, including immediately upon First Commercial Sale, during the Term and for a period of five (5) years after the termination or expiration of this Agreement, a product liability insurance in amounts, respectively, which are reasonable and customary in the U.S. pharmaceutical industry for companies of comparable size and activities at the respective place of business of Dara but in no event less than five million dollars ($5,000,000). All insurance policies reflecting such insurance shall be written on a “claims made” basis with an insurance company rated at least A-3 by Best’s rating guide. Onxeo (and its designees who have an insurable interest) shall be added as an additional insured on Dara’s product liability insurance policy. If requested by Onxeo in writing, Dara shall provide Onxeo with a certificate of insurance and shall keep such policy current. The product liability insurance shall insure against all liability, including without limitation personal injury, physical injury, or property damage arising out of Dara’s activities in connection with the Supply and Commercialization of the Product. For product liability insurance, Dara also agrees to waive, and will require its insurers to waive, all rights of subrogation against Onxeo and its directors, officers, employees, and agents on all the foregoing coverages.
 
 
 
 
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9.6                   Remedies Relating to the Vestiq Bankruptcy . Onxeo has advised Dara that the NDA for the Product was previously held by Vestiq Holdings, Inc. and/or its Affiliates (together, “ Vestiq ”‘) and was transferred by Vestiq to Onxeo prior to the filing of the Voluntary Petition under Chapter 7 of the U.S. Bankruptcy Code filed by Vestiq Holdings, Inc. and its Affiliates on April 29, 2014. Each Party hereby represents and warrants to the other that it has made its own independent investigation of the circumstances surrounding the bankruptcy of Vestiq and the transfer to Onxeo of the NDA and assumes any and all risks it may have in connection with or as a result thereof. In the event that the Trustee in such bankruptcy proceedings or any third party seeks to challenge the validity or enforceability of the transfer to Onxeo of the NDA, Onxeo shall promptly consult with Dara concerning any actions to be taken to ensure Dara’s quiet enjoyment of the NDA and the rights granted to Dara hereunder, and Onxeo shall (as its sole obligation and as Dara’s sole remedy, to the exclusion of any other obligations including any obligation to indemnify Dara for Losses arising from or related thereto) take any action that Dara may reasonably request in order to preserve such quiet enjoyment, at Dara’s cost, a reasonable estimate of such costs to be advanced by Dara to Onxeo as a condition to Onxeo’s obligation to take such action.
 
9.7                   Limitation of Liability . EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR TO THE EXTENT CAUSED BY GROSS NEGLIGENCE OR INTENTIONAL ACTS OR OMISSIONS, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY OF ITS AFFILIATES FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES SUFFERED OR INCURRED BY SUCH OTHER PARTY OR ITS AFFILIATES IN CONNECTION WITH A BREACH OR ALLEGED BREACH OF THIS AGREEMENT. THE FOREGOING SENTENCE SHALL NOT APPLY IN CASES OF FRAUD AND SHALL NOT LIMIT THE OBLIGATIONS OF EITHER PARTY TO INDEMNIFY THE OTHER PARTY FROM AND AGAINST THIRD PARTY CLAIMS UNDER THIS SECTION 9.
 
SECTION 10. TERM AND TERMINATION
 
10.1                 Term . This Agreement shall commence as of the Effective Date and shall continue until terminated as hereinafter provided.
 
10.2                 Termination . In addition to any other provision of this Agreement expressly providing for termination of this Agreement:
 
10.2.1                 This Agreement may be terminated by either Party: (a) immediately upon written notice if the other Party shall file in any court or agency, pursuant to any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization (except for the purposes of a bona fide amalgamation or other reorganization) or for an arrangement or for the appointment of a receiver or trustee of the other Party or of its assets, or if the other Party shall be served with an involuntary petition against it, filed in any insolvency proceeding, and such petition shall not be dismissed within sixty (60) days after the filing thereof, or if the other Party shall propose or be a party to any dissolution or liquidation, or if the other Party shall make an assignment for the benefit of its creditors; or (b) if the other Party commits any material misrepresentation or material breach of any of its covenants, obligations, representations or warranties under this Agreement and, in the case of a breach which is capable of remedy, such Party fails to remedy the same within ninety (90) days after receipt of a written notice describing the breach and requiring it to be so remedied (or, in the case of Dara’s covenants and obligations under Section 5, Dara fails to remedy the same within sixty (60) days after receipt of a written notice describing the breach and requiring it to be so remedied) or for such longer period as may be reasonably required to cure such breach, provided that the breaching party continues to diligently pursue such cure;
 
 
 
 
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10.2.2                 This Agreement may be terminated by Onxeo upon written notice to Dara in the event that Dara fails to promptly pay (i) for any undisputed Milestone as and when due pursuant to Section 6.1, or (ii) any undisputed invoice for Supply Price and Sample Price as and when due pursuant to the Supply Agreement, if Dara has not cured such breach within sixty (60) days (ten (10) days in the event of a payment default regarding any undisputed payment) following written notice of termination by Onxeo; and
 
10.2.3                 This Agreement may be terminated by Onxeo in the event that Dara fails to (i) use its Commercially Reasonable Efforts to execute its commercial responsibilities for the Product and/or (ii) use its Commercially Reasonable Efforts to maintain the NDA for the Product during the Term, in each case as determined by a binding arbitral decision as provided in Section 13.13.3. In either case, if such breach is curable, such termination shall be effective only if Dara fails to remedy such failure within sixty (60) days of receipt of such notice.
 
10.3                 No Waiver . The right of Dara or Onxeo to terminate this Agreement, as herein above provided, shall not be affected in any way by Dara’s or Onxeo’s respective waiver or failure to take action with respect to any prior default or breach.
 
10.4                Effects of Termination.
 
10.4.1                 Effect of Termination Generally . On the termination of this Agreement for any reason, except as otherwise expressly provided herein, all rights and obligations of each Party hereunder shall cease.
 
10.4.2                 Disposition and Transfer of Inventory upon Termination: Milestone Payment Due Thereon Not Affected By Termination . On the expiration or earlier termination of this Agreement by either Party according to the provisions of Section 10.2: (a) accrued but unpaid Supply Price, Sample Price and Milestone payments for Product sold as of the effective date of termination shall remain due and payable as scheduled; (b) at Onxeo’s option, Onxeo shall complete all work-in-process and Dara shall purchase at the Supply Price and the Sample Price, as applicable, under this Agreement, all remaining inventory of the Product and, at cost, all Raw Materials relating thereto in Onxeo’s possession or control, and Onxeo shall use all Commercially Reasonable Efforts to mitigate the cost thereof to Dara and to consult with Dara in connection with such attempts to mitigate; (c) Dara shall have the right to sell out such remaining inventory of Product for a period of up to two (2) years following the termination of this Agreement to the extent the dating of such Product has not expired, after which any unsold inventory of Product shall be promptly destroyed at Dara’s cost, but only on its customary terms and conditions of sale; and (d) Dara shall pay Onxeo, if applicable, for achievement of the Milestone, in the same amount and calculated in accordance with the terms set forth in Section 6.1, on each sale of remaining inventory of Product by Dara and/or its Affiliates and/or its Co-promotion Partners when and as such Product is sold.
 
 
 
 
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10.4.3                  Effect of Certain Instances of Termination . In the event this Agreement is terminated by Onxeo pursuant to Sections 10.2.2 through and including 10.2.4, Dara hereby agrees to assign or cause to be assigned to Onxeo, should Onxeo so request, all of Dara’s and its Affiliates’ rights, title and interests in and to (a) the Oravig Trademark, and (b) the NDA for the Product as filed with the FDA (or the data and information that would otherwise be in the NDA for the Product if such NDA has not been filed, to the extent such data and information is in Dara’s or its Affiliates’ possession and control), without payment by Onxeo to Dara with respect to such assignments, and Dara agrees to cooperate with Onxeo and to execute and deliver any and all documents reasonably necessary to perfect its rights to the NDA for the Product. If Onxeo reasonably requests, and to the extent assignable by Dara, Dara shall transfer to Onxeo any Third Party agreements relating to the Development or Commercialization of Product to which Dara is a party, provided that Onxeo agrees to assume and perform all obligations arising under such agreements after the date of such assignment and to reimburse Dara for any escrow, advance or similar payments made by Dara that will inure to the benefit of Onxeo. At Onxeo’s request, for a period not longer than six (6) months after termination of the Agreement, Dara shall continue to support the product call center at Dara’s sole cost. Dara shall further continue to receive Adverse Drug Experience and Serious Adverse Drug Experience reports relating to the Product, and forward such reports to Onxeo, during a period of eighteen (18) months after termination and until the expiration date of shelf life of the last lot of the Product which Dara distributes in the Territory, whichever period is longer.

10.4.4                 Accrued Rights . Termination, relinquishment or expiration of this Agreement for any reason shall be without prejudice to any right which shall have accrued to the benefit of either Party prior to such termination, relinquishment or expiration including damages arising from any breach under this Agreement. Termination, relinquishment or expiration of this Agreement shall not relieve either Party from any obligation which is expressly or by implication intended to survive such termination, relinquishment or expiration of this Agreement and shall not affect or prejudice any provision of this Agreement which is expressly or by implication provided to come into effect on, or continue in effect after, such termination, relinquishment or expiration. Remedies for breaches under this Agreement shall also survive any termination, relinquishment or expiration of this Agreement.
 
10.4.5                 Survival . The following Sections of this Agreement, as well as any other provisions in this Agreement which specifically state they will survive termination or expiration of this Agreement, shall survive termination of this Agreement for any reason: Section 1, Section 2.1 through Section 2.6 inclusive (provided that the license granted in Section 2.3 shall be non-exclusive and all such Sections shall survive for the sole purpose of selling remaining inventory of the Product as set forth in Section 10.4.2(b)), Section 6.1 with respect to an unpaid Milestone payment, Section 7.4, Section 8, Section 9, Section 10.3, this Section 10.4.5, Section 11.3, Section 12.2 and 12.3 with respect to pending claims thereunder, and Section 13.
 
10.4.6                 Return of Confidential Information . Within thirty (30) days of any expiration or termination of this Agreement: (a) Dara shall cease to use and shall deliver to Onxeo, upon written request, all Confidential Information of Onxeo, except for any documents or records that Dara is required to retain by Applicable Law, including without limitation copies of all data, reports, records, promotional materials, advertising, and marketing materials in Dara’s possession relating to the Commercialization of the Product in the Territory, including all non-clinical and clinical data relating to any Product (provided that Onxeo shall reimburse Dara’s reasonable and properly substantiated out-of-pocket costs for all non-clinical and clinical data requested by Onxeo from Dara); and (b) Onxeo shall cease to use and shall deliver to Dara, upon written request, all Confidential Information of Dara except for any documents or records that Onxeo is required to retain by Applicable Law. The foregoing notwithstanding, each Party may retain one copy of any contemplated Confidential Information solely for purposes of ensuring compliance with the terms of this Agreement.
 
 
 
 
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10.4.7                  Co-Promotion Agreements . Upon termination of this Agreement pursuant to Section 10.2, all valid Co-promotion Agreements granted under this Agreement if then in effect shall, if so requested by Onxeo on an agreement-by-agreement basis, be assigned to Onxeo. Thereafter, each such Co-promotion Partner shall be a become a co-promotion partner of Onxeo at Onxeo’s option and provided that (i) such Co-promotion Partner is then in full compliance with all material terms and conditions of its Co-promotion Agreement, (ii) all payments owed there under to Onxeo have been paid, and (iii) Onxeo agrees, at least ten (10) Business Days prior to the effective date of termination of this Agreement, that such Co-promotion Partner directly assumes all obligations of Dara under this Agreement in the Territory.

SECTION 11. REGULATORY MATTERS
 
11.1                 Regulatory Activities in the Territory . Subject to the terms of the provisions of Section 4, Dara shall use Commercially Reasonable Efforts, in good faith, to conduct such research and development activities, including clinical trials, necessary to maintain Regulatory Approval for the Product in the Territory and shall cooperate to take all such reasonable actions as shall be necessary or appropriate to prepare and file all documentation with the Regulatory Authorities for the maintenance of Regulatory Approval of the Product in the Territory and to furnish such information to the Regulatory Authorities in connection therewith.
 
11.2                 Communications and Meetings with Governmental Authorities .
 
11.2.1                  Communications with Governmental Authorities . Subject to the provisions of this Section 11, Dara shall be solely responsible for interfacing, corresponding and meeting with all Regulatory Authorities for the NDA. At all times during the Term, Dara shall be responsible, at its expense, for reporting any and all Serious Adverse Drug Experiences and Adverse Drug Experiences to applicable Regulatory Authorities. Immediately upon receipt of any contact with or communication from any Regulatory Authority relating to the Product or becoming aware of any Serious Adverse Drug Experience or Adverse Drug Experience in the Territory, each of the Parties shall forward a copy or description of the same to the other Party and shall use Commercially Reasonable Efforts to respond to all reasonable inquiries from the other Party relating thereto. Both Parties shall use Commercially Reasonable Efforts to cooperate to provide all reasonable assistance and take all actions which are necessary to comply with any Applicable Law, with any out-of-pocket costs borne by Onxeo in this connection as it relates to actions in the Territory to be reimbursed by Dara within sixty (60) days after receipt of an invoice from Onxeo therefor.
 
11.2.2                  Onxeo’s Participation in Meetings with Regulatory Authorities . Onxeo, to the extent not prohibited by the Regulatory Authority, shall be allowed to attend all meetings between representatives of Dara and/or its agents and Regulatory Authorities relating to the Product; provided, however, that Onxeo’s attendance at such meetings shall not be construed as allowing Onxeo to participate in any interaction with the Regulatory Authorities without the express permission of Dara (unless such interaction by Onxeo is required in circumstances raising issues of public health or safety). Dara shall provide Onxeo as soon as reasonably possible (but in any event at least five (5) Business Days before any such meeting) with copies of all documents, correspondence and other materials in its possession which are relevant to the matters to be addressed at any such meeting. Dara shall also provide Onxeo with prompt access to all exchanges of correspondence with a Governmental Authority with respect to the Product.
 
 
 
 
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11.2.3                  Notification by Parties of any Regulatory Actions . Each Party shall as soon as reasonably possible (but in any event at least three (3) Business Days), after receipt of notice of any inspections, proposed regulatory actions, investigations or other requests by any Regulatory Authority with respect to the Supply or Commercialization of Product in the Territory, as well as any corrective or other actions with Regulatory Authorities initiated by such Party with respect thereto, notify the other Party in reasonable detail with respect thereto and will provide such Party with copies of all related documentation. Each Party shall have the right to attend all material preparation, internal caucus, and debriefing sessions related to such requests, whether in person, by teleconference or otherwise, between a Party or its agents with respect to the Supply or Commercialization of Product in the Territory, and each Party shall provide the other Party with reasonable prior written notice of any such sessions and copies of meeting minutes with respect thereto.
 
11.2.4                  Approval of Labeling and Promotional Materials . Subject to the provisions of this Agreement, Dara shall timely submit to the applicable Regulatory Authorities and obtain any necessary Regulatory Authority approvals of any promotional materials, label, labeling, package inserts or outserts, monographs and packaging.
 
11.3                 Regulatory Information .
 
11.3.1                 Assistance . Subject to the terms of this Section 11, in the Territory, each Party agrees to use Commercially Reasonable Efforts to provide the other with all reasonable assistance and take all actions reasonably requested by the other Party that are necessary or desirable to enable the other Party to comply with any Applicable Law.
 
11.3.2                 Notice . Each Party or its respective representative shall provide the other Party with notice, in a sufficiently timely basis to enable the other Party to comply in all material respects with Applicable Law, of notification or other information which it receives (directly or indirectly) from, any Regulatory Authority (and providing, as soon as reasonably possible, copies of any associated written requests) that: (a) raises any material concerns regarding the safety or efficacy of the Product; (b) indicates or suggests a Third Party Claim arising in connection with the Product; or (c) is reasonably likely to lead to a recall, market withdrawal or field correction of, field alert report or comparable report with respect to the Product. Information that shall be disclosed pursuant to this Section 11.3.2 shall include, but not be limited to:
 
 
(i)
inspections by Regulatory Authority of manufacturing in the Territory, distribution or other related facilities concerning the Product;
 
 
(ii)
inquiries by a Regulatory Authority in the Territory concerning clinical investigation activities (including, without limitation, inquiries regarding investigators, clinical monitoring organizations and other related Parties) with respect to the Product;
 
 
(iii)
any communication from a Regulatory Authority in the Territory involving the manufacture, sale, promotion or distribution of the Product, or any other Regulatory Authority reviews or inquiries relating to any event set forth in this Section 11.3.2(c);
 
 
 
 
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(iv)
any receipt of a FDA Warning Letter relating to the Product;
 
 
(v)
any initiation of any Regulatory Authority investigation in the Territory, detention, seizure or injunction concerning the Product; and

 
(vi)
any other regulatory action in the Territory (e.g., proposed labeling or other registration dossier changes and recalls) which would affect the Product.

11.4                 Pharmacovigilance .
 
11.4.1                  Each Party shall strictly comply (at its sole cost and expense), and shall cause its Affiliates, licensees and Co-promotion Partners to strictly comply, in implementing a pharmacovigilance mutual alert process to comply with all applicable legal obligations of Regulatory Authorities with respect to the Product. Without limiting the generality of the above, Dara shall be responsible for implementing the procedures required by the Regulatory Authorities in the Territory. Each Party shall keep the other Party informed in a timely manner of all communications exchanged with the Regulatory Authorities, so that each Party may comply with its obligations as Regulatory Approval holder.
 
11.4.2                  Subject to the terms of this Agreement, and within sixty (60) days of the Effective Date, Dara and Onxeo (under the guidance of their respective pharmacovigilance departments, or equivalent thereof) shall define and finalize the procedures the Parties shall employ to protect patients who receive the Product and promote their well-being in a separate Safety Data Exchange Agreement (“SDEA”). These responsibilities shall include mutually acceptable guidelines and procedures for the receipt, investigation, recordation, communication and exchange (as between the parties) of safety information such as Adverse Drug Experiences, pregnancy exposure, lack of efficacy, misuse/abuse; and any other information concerning the safety of the Product. Such guidelines and procedures will be in accordance with, and enable the parties to fulfill, local and international regulatory reporting obligations to Regulatory Authorities. Furthermore, such agreed procedures shall be consistent with relevant laws and regulations in the Territory and International Council for Harmonisation (ICH) guidelines, except where said guidelines may conflict with existing local regulatory safety reporting requirements, in which case local reporting requirements shall prevail. The “SDEA” shall form an integral part of this Agreement.
 
11.5                  Record Keeping . Each Party shall maintain, or cause to be maintained, records of its respective Development and regulatory activities with respect to the Product in the Territory in sufficient detail and in good manner appropriate for patent and regulatory purposes, which shall be complete and accurate and shall fully and properly reflect all work done and results achieved in the performance of its respective Development activities, and which shall be retained by such Party for at least ten (10) years after the termination of this Agreement, or for such longer period as may be required by Applicable Law. Each Party shall have the right, during normal business hours and upon reasonable notice, to inspect and copy any such records; provided . however, that, except in the event of an “audit for cause”, neither Party shall have the right to conduct more than one such inspection in any twelve (12)-month period. “ Audit for cause ” shall mean any audit conducted by either Party by reason of material failures of the other Party or its Affiliates or Co-promotion Partners to comply with any undertakings herein, which have not been remedied within two (2) weeks from the date of notice issued by the other Party regarding such difficulty or failure. The cost of such audit for cause shall not be invoiced by either Party to the other Party.
 
 
 
 
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11.6                  Events Affecting Integrity or Reputation . During the Term, the Parties shall notify each other immediately of any circumstances of which they are aware and which could materially impair the integrity and reputation of the Product or if a Party is threatened by the unlawful activity of any Third Party in relation to the Product, which circumstances shall include, by way of illustration, deliberate tampering with or contamination of the Product by any Third Party as a means of extorting payment from the Parties or another Third Party. In any such circumstances, the Parties shall use Commercially Reasonable Efforts to limit any damage to the Parties and/or to the Product.


SECTION 12. INTELLECTUAL PROPERTY
 
12.1                Onxeo Intellectual Property Prosecution and Maintenance .
 
12.1.1                  Onxeo Patents and Trademarks . Onxeo shall use Commercially Reasonable Efforts to prepare, file, prosecute and maintain the Onxeo Patents in the Territory, and shall pay all maintenance fees required therefor. Additionally, Onxeo shall use Commercially Reasonable Efforts to list the Onxeo Patents in the Orange Book. The cost of such preparation, filing, prosecution and maintenance of the Onxeo Intellectual Property shall be borne by Onxeo. Onxeo shall consider in good faith the reasonable requests and suggestions of Dara with respect to strategies for prosecution and maintenance of Onxeo Intellectual Property in the Territory and, as applicable, revisions to correspondence with the U.S. Patent and Trademark Office. Should Onxeo decide to cease its activities related to preparation, filing, prosecution and maintenance of the Onxeo Intellectual Property, it shall deliver to Dara reasonable notice of its intent to discontinue such activities, upon which Dara shall have the right to continue to support the preparation, filing, prosecution and maintenance of the Onxeo Intellectual Property at Dara’s cost (including costs incurred in connection with litigation).
 
12.1.2                  Cooperation of the Parties . Each Party agrees to cooperate fully in the preparation, filing, prosecution and maintenance of any registered Onxeo Intellectual Property under this Agreement and in the obtaining and maintenance of any extensions, supplementary protection certificates and the like with respect to any registered Onxeo Intellectual Property.
 
 
 
 
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12.2                 Infringement by Third Parties; Validity Challenges . Onxeo, shall have the first right to bring and control any action or proceeding with respect to infringement, or challenges to the validity, of any Onxeo Patents or Oravig Trademark at its own expense and by counsel of its own choice. With respect to infringement, or challenges to the validity, of any Onxeo Patents, Dara shall have the right, at its own expense, to be represented in any such action by counsel of its own choice, and if Onxeo fails to bring an action or proceeding within (a) one hundred twenty (120) days following the notice of alleged infringement, or (b) five (5) days before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, Dara shall have the right to bring and control any such action at its own expense and by counsel of its own choice, and Onxeo shall have the right, at its own expense, to be represented in any such action by counsel of its own choice; provided, however, (i) that Dara acknowledges that such action can be based solely on the claims of the Onxeo Patent protecting the Product, (ii) that if Onxeo enters into negotiations with an alleged infringer within said one hundred twenty (120) day period, then Onxeo shall have an additional ninety (90) days to said one hundred twenty (120) day period or said shorter period of time ending five (5) days before the time limit, if any, set forth in the applicable laws and regulations for filing such suit for infringement to conclude such negotiations before Dara may bring and control suit for such infringement. In the event that, prior to the fifth (5th) anniversary of the Effective Date or thereafter if the Net Sales of the Product during the four (4) preceding Calendar Quarters exceeded in the aggregate ten million dollars ($10,000,000), a Third Party commences a proceeding seeking invalidation or reexamination of a Onxeo Patent issued as of the date hereof in the Territory, Onxeo shall, on Dara’s reasonable request, use Commercially Reasonable Efforts to defend against such challenge or reexamination, at Onxeo’s expense; otherwise, Onxeo shall have no obligation to initiate or defend a proceeding with respect to the defense or enforcement of an Onxeo Patent. In the event that Dara assumes primary control of any defense or enforcement action contemplated hereunder, Dara shall be entitled to retain seventy-five percent (75%) of any recovery, after deducting its costs for defending or enforcing such action, with the remaining twenty-five percent (25%) of such recovery paid, when and as paid, to Onxeo. Except as expressly set forth hereinabove, any recovery related to the Product which is realized by either Party as a result of such litigation, after reimbursement of any litigation expenses of Onxeo and Dara, shall be shared equally by the Parties. Upon the request of the Party bringing such action or proceeding, the other Party will join such action or proceeding as a party and will use Commercially Reasonable Efforts to cause any Third Party as necessary to join such action or proceeding as a party (all at the first Party’s expense) if doing so is necessary for the purpose of establishing standing or is otherwise required by applicable laws and regulations to pursue such action or proceeding.
 
12.3                  Infringement of Third Party Rights . Each Party shall promptly notify the other in writing of any allegation by a Third Party that the activity of either of the Parties or their Affiliates or subcontractor or sublicense in connection with the Development, Supply or Commercialization of the Product infringes the issued patent rights (or would infringe the claims, if issued, of a pending patent application) of any Third Party in the Territory. In the event of a litigation in accordance with this Section 12.3, the Party not controlling such litigation shall use its best efforts to cooperate fully, including, if required for the purposes of any cross claim or counterclaim, the furnishing of a power of attorney to bring suit in the other Party’s name and/or being named as a party in such suit and as necessary. Neither Party shall enter into any settlement of any litigation, without the prior written consent of the other, such consent not to be unreasonably withheld, delayed or conditioned. In the event that, in connection with items included in the Onxeo Intellectual Property after the Effective Date, Onxeo’s disclosure or grant of license thereof to Dara as provided under this Agreement triggers a payment obligation to a Third Party, such items shall be included within the scope of the Onxeo Intellectual Property only if Dara assumes and makes any such required payments to the Third Party.
 
12.4                  Access to Onxeo Know-How . Onxeo shall, for the first three (3) years after the Effective Date, give Dara access to any Know-How (including business records) relating to the prior Development or Commercialization of the Product in the Territory, and shall provide Dara with copies of any documents embodying such Know-How, to the fullest extent permitted by any confidentiality or similar restrictions on disclosure or use applicable to such Know-How.

SECTION 13. MISCELLANEOUS
 
13.1                 Independent Contractor . Neither Onxeo nor Dara, together in each case with their respective employees or representatives, are under any circumstances to be considered as employees, partners, joint venturers, agents or representatives of the other by virtue of this Agreement, and neither shall have the authority or power to bind the other or contract in the other’s name.
 
 
 
 
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13.2                 Registration and Filing of this Agreement . To the extent, if any, that either Party concludes in good faith that it or the other Party is required to file or register this Agreement or a notification thereof with any Regulatory Authority including, without limitation, the U.S. Securities and Exchange Commission or the U.S. Federal Trade Commission, in accordance with Applicable Law, such Party shall inform the other Party thereof. Should both Parties jointly agree in writing that either of them is required to submit or obtain any such filing, registration or notification, they shall cooperate, each at its own expense, in such filing, registration or notification and shall execute all documents reasonably required in connection therewith. In such filing, registration or notification, the Parties shall request confidential treatment of sensitive provisions of this Agreement, to the extent permitted by Applicable Law. The Parties shall promptly inform each other as to the activities or inquiries of any such Regulatory Authority relating to this Agreement, and shall reasonably cooperate to respond to any request for further information therefrom on a timely basis.
 
13.3                 Notices . Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed given when so delivered in person, by overnight courier, by facsimile transmission (with receipt confirmed by automatic transmission report) or two (2) Business Days after being sent by registered or certified mail (postage prepaid, return receipt requested), as follows:
 
 
If to Dara:
 
   
DARA Biosciences, Inc.
8601 Six Forks Road, Suite 160 Raleigh,
North Carolina 27615, USA Attn:
President & Chief Executive Officer
Telephone: 001 919 872 5578
Facsimile: 001 919 861 0239
 
 
If_to_Onxeo:
Onxeo_S.A.
49, boulevard du General Martial Valin, 1st Floor
75015 Paris, France
Attn: Chief Executive Officer
Telephone: +33 145 58 76 00
Facsimile: +33 145 58 08 81
 
Either Party may by notice given in accordance with this Section 13.3 to the other Party designate another address or person for receipt of notices hereunder.
 
 
 
 
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13.4                  Binding Effect; No Assignment . This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. Neither Onxeo nor Dara may assign any of its rights or delegate any of its liabilities or obligations hereunder without the prior written consent of the other Party, except that without the prior consent of the other Party, either Party may assign this Agreement and/or its rights and obligations under this Agreement, in whole or in part, to any of its Affiliates or in the event of a Change of Control of Dara and Onxeo may assign any of its rights to a Milestone payment or any other amounts due under this Agreement to any of its Affiliates or any Third Party. Onxeo may, in addition, assign all of its right, title and interest in and to the Onxeo Intellectual Property and the Oravig Trademark to a Third Party, upon thirty (30) days prior notice to Dara, provided that Dara may require in writing additional information relevant for Dara to determine whether the acquiring party(ies) commercialize in the Territory other oral antifungal products likely to compete with the Product or other products that prevent or treat oropharyngeal candidiasis (oral thrush), and have and will maintain and dedicate to the Commercialization of the Product financial and managerial resources at least equivalent to those previously dedicated by Onxeo. In the event that the acquiring party(ies) commercialize competing oral antifungal or oropharyngeal candidiasis products or do not confirm in writing, to Dara’s reasonable satisfaction, that they have and will maintain such resources, Dara may oppose such assignment, in which case such assignment shall be abandoned. Any purported assignment or transfer in violation of this Section 13.4 will be void ab initio and of no force or effect. The Parties acknowledge and agree that the acquisition by a Third Party of substantially all of the assets of Dara related to the Commercialization of the Product shall be considered to be a Change of Control of Dara for purposes of this Agreement. In the event of a Change of Control of Dara, Dara shall notify Onxeo of such Change of Control specifying the effective date thereof and the name(s) of the acquiring party(ies). Upon receipt of such notification, Onxeo may require in writing additional information relevant for Onxeo to determine whether the acquiring party(ies) commercialize in the Territory other oral antifungal products likely to compete with the Product or other products that prevent or treat oropharyngeal candidiasis (oral thrush) and have and will maintain and dedicate to the Commercialization of the Product financial and managerial resources at least equivalent to those previously dedicated by Dara. In the event that the acquiring party(ies) commercialize competing oral antifungal or oropharyngeal candidiasis products or do not confirm in writing, to Onxeo’s reasonable satisfaction, that they have and will maintain such resources, Onxeo may terminate this Agreement by notice transmitted to Dara no later than thirty (30) days after Onxeo’s first request for such information, in which case this Agreement shall terminate ninety (90) days after the receipt of such notice by Dara.
 
13.5                  No Implied Waivers: Rights Cumulative . No failure on the part of Onxeo or Dara to exercise and no delay in exercising any right, power, remedy or privilege under this Agreement, or provided by statute or at law or in equity or otherwise, including the right or power to terminate this Agreement, shall impair, prejudice or constitute a waiver of any such right, power, remedy or privilege or be construed as a waiver of any breach of this Agreement or as an acquiescence therein, nor shall any single or partial exercise of any such right, power, remedy or privilege preclude any other or further exercise thereof or the exercise of any other right, power, remedy or privilege.
 
13.6                  Severability . If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable. The Parties further agree to replace such invalid or unenforceable provision of this Agreement with a valid and enforceable provision that shall achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable provision.
 
 
 
 
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13.7                  Force Majeure . Neither Party shall be liable for delay in delivery or nonperformance (except for any obligation for the payment of money), in whole or in part, nor shall the other Party have the right to terminate this Agreement except as otherwise specifically provided in this Section 13.7, to the extent that such delay in delivery or nonperformance is caused by any event reasonably beyond the control of such Party and without the fault or negligence of the such Party, including fires, floods, embargoes, shortages, epidemics, quarantines, war, acts of war (whether war be declared or not), terrorism, insurrections, riots, civil commotion, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any Regulatory Authority (a “ Force Majeure ”); provided, however , that the Party affected by such a condition shall, within ten (10) days of its occurrence, give written notice to the other Party stating the nature of the condition, its anticipated duration and any action being taken to avoid or minimize its effect. The suspension of performance shall be of no greater scope and no longer duration than is reasonably required and the nonperforming Party shall use its Commercially Reasonable Efforts to remedy its inability to perform; provided, however, that in the event the suspension of performance continues for a period of one hundred eighty (180) consecutive days after the date of the occurrence, and such failure to perform would constitute a material breach of this Agreement in the absence of such Force Majeure event, the non-affected Party may terminate this Agreement immediately by written notice to the other Party.
 
13.8                  Amendment . This Agreement may not be amended except by an instrument signed by each of the Parties hereto.
 
13.9                  Rules of Construction . The Parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or ruling of construction providing that ambiguities in an agreement or other document shall be construed against the Party drafting such agreement or document.
 
13.10                  Publicity . Should either Party intend to make a public statement disclosing the existence of or relating to this Agreement or to activities hereunder, such Party shall provide the other Party with a copy of the draft of such release and statement not less than three (3) Business Days in advance of such Party’s intended release date and obtain the express written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed; provided , however , that neither Party shall be prevented from complying with any duty of disclosure it may have pursuant to Applicable Law, including securities laws and the procedures, the listing standards or agreements of any national or international securities exchange.
 
13.11                  Publications . Each Party to this Agreement recognizes that the publication of papers regarding results of and other information regarding Development or Commercialization activities with respect to Product, including oral presentations and abstracts, may be beneficial to both Parties as well as to Onxeo’s licensees outside the Territory, provided such publications are subject to reasonable controls to protect Confidential Information. Accordingly, a Party shall have the right to review and comment on any material proposed for disclosure or publication by the other Party, such as by oral presentation, manuscript or abstract, which includes Confidential Information of the other Party. Before any such material is submitted for publication, the Party proposing publication shall deliver a complete copy to the other Party at least thirty (30) days prior to submitting the material to a publisher or initiating any other disclosure. Such other Party shall review any such material and give its co mm ents to the Party proposing publication within thirty (30) days of the delivery of such material to such other party. With respect to oral presentation materials and abstracts, such other Party shall make reasonable efforts to expedite review of such materials and abstracts, and shall return such items as soon as practicable to the Party proposing publication with appropriate comments, if any, but in no event later than thirty (30) days from the date of delivery to the non-publishing Party. The publishing Party shall comply with the other Party’s request to delete references to the other Party’s Confidential Information in any such material and agrees to delay any submission for publication or other public disclosure for a period of up to an additional ninety (90) days for the purpose of preparing and filing appropriate patent applications. During the Onxeo review process under this Section 13.11, Onxeo may disclose to its licensees outside the Territory the content of the proposed publication in order to obtain comments from such licensees, provided that any licensees are under confidentiality agreement with Onxeo regarding the Product.
 
 
 
 
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13.12                  Expenses . Except as expressly set forth herein, each Party shall bear all fees and expenses incurred by such Party in connection with, relating to or arising out of the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including attorneys’, accountants’ and other professional fees and expenses.
 
13.13                  Governing Law: Submission to Jurisdiction; Waiver .
 
13.13.1                 Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York, U.S.A, without application of its conflict of laws principles.
 
13.13.2                  Disputes . The Parties recognize that disputes as to certain matters arising under this Agreement may arise from time-to-time. It is the objective of the Parties to seek to resolve any disputes arising under this Agreement in an expedient manner and, if at all possible, without resort to litigation, and to that end the Parties agree to abide by the procedures set forth in this Section 13.13.2 to resolve any such disputes. The Parties initially shall attempt to resolve any issues through good faith negotiations in the spirit of mutual cooperation between business executives with authority to resolve the dispute, for a period of thirty (30) days after receipt of the first notice by either Party requesting negotiations. Should any issue not be timely resolved by good faith negotiations, any dispute with respect thereto shall be submitted to final and binding arbitration, as provided below.

13.13.3                  Jurisdiction . Any controversy or claim arising out of or relating to this Agreement, or the interpretation or breach thereof, shall be resolved by final and binding arbitration administered by the International Centre for Dispute Resolution in accordance with its International Arbitration Rules as then in force. The number of arbitrators shall be three (3), or one (1) if the amount in controversy is less than one million dollars ($1,000,000), and the place of arbitration shall be London, England. When three (3) arbitrators are required based on the amount in controversy, each Party shall appoint an arbitrator and the Parties shall mutually agree on the appointment of the third arbitrator. When one (1) arbitrator is required based on the amount in the controversy, the Parties shall mutually agree on the appointment of an arbitrator. The language of the arbitration shall be English. The arbitrator(s) shall be entitled to award interim and conservatory relief to the fullest extent permitted by New York law, shall apply the International Bar Association Rules on the Taking of Evidence in International Commercial Arbitration as now in effect, and shall otherwise apply New York procedural law.

13.14                 Entire Agreement . This Agreement and any other agreements expressly stated to be entered into in connection herewith contain the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior agreements, written or oral, between the Parties with respect thereto.
 
 
 
 
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13.15                  Third Party Beneficiaries . None of the provisions of this Agreement, express or implied, is intended to be or shall be for the benefit of or enforceable by any Person (including, without limitation, any creditor of either Party hereto) other than Dara and Onxeo and their respective successors and permitted assigns. No such Person shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any debt, liability or obligation (or otherwise) against either Party hereto.
 
13.16                  Rights in Bankruptcy . The Parties acknowledge that all rights and licenses granted under or pursuant to any Section of this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11 of the United States Code and other similar foreign laws (collectively, the “ Bankruptcy Code ”), licenses of rights to be “intellectual property” as defined under the Bankruptcy Code or such foreign laws. If a case is commenced during the Term by or against Onxeo or its Affiliates under a Bankruptcy Code then, unless and until this Agreement is rejected as provided in such Bankruptcy Code, Onxeo (in any capacity, including debtor-in-possession) and its successors and assigns (including, without limitation, a trustee) shall perform all of the obligations provided in this Agreement to be performed by such Party. If a Bankruptcy Code case is commenced during the Term by or against Onxeo, this Agreement is rejected as provided in the Bankruptcy Code and Dara elects to retain its rights hereunder as provided in the Bankruptcy Code, then Onxeo, subject to the Bankruptcy Code case (in any capacity, including debtor-in-possession) and its successors and assigns (including, without limitation, a Title 11 trustee), shall provide to Dara copies of all information necessary for Dara to prosecute, maintain and enjoy its license under the Onxeo Intellectual Property under the terms of this Agreement held by Onxeo and such successors and assigns promptly upon Dara’s written request therefor. All rights, powers and remedies of Dara, as a licensee hereunder are in addition to and not in substitution for any and all other rights, powers and remedies now or hereafter existing at law or in equity (including, without limitation, the Bankruptcy Code) in the event of the commencement of a Bankruptcy Code case by or against Onxeo.
 
13.17                 Corruption . Each Party undertakes to ensure that the performance of their obligations under this Agreement will at all times be in compliance with all laws and regulations governing corruption and bribery of public or private individuals or entities. Each Party declares that it understands that the local and international anti-corruption and anti-bribery laws may make it a criminal offense for the other Party, its officers, directors, employees, or representatives including consultants, to offer or give a payment or anything of value to any business partner or government official, for the purpose of improperly inducing or influencing such business partner or government official to do or refrain from doing any act, or in an attempt improperly to gain or maintain business or to secure an improper advantage. Each Party agrees that it shall make no payment or give anything of value that would cause Onxeo or Dara to be in violation of applicable anti-corruption or anti-bribery laws. Each Party confirms that should it learn of or have reason to know of any activities in connection with its compensation by the other Party which may constitute a violation of applicable anti-corruption or anti-bribery laws, it will immediately advise the other Party. Any breach by a Party of its obligations under this Section 13.17 shall entitle the other Party to terminate this Agreement immediately by written notice to the other Party.
 
13.18                 Counterparts; Signatures . This Agreement may be executed in multiple counterparts, all of which, when executed, shall be deemed to be an original and all of which together shall constitute one and the same document. Signatures provided by facsimile or e-mail transmission shall be deemed to be original signatures.
 
 
 
 
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13.19                Schedules . The Schedules of this Agreement are the following:
 
Schedule 1: Onxeo Patents
 
Schedule 2: Oravig Trademark
 
Schedule 3: Supply Agreement
 
Schedule 4: Initial Purchase Order (4.1) and Manufacturing
 
Forecast (4.2)
 
Schedule 5: Commercialization Plan
 
Schedule 6: Allocation of Annual FDA Establishment and Product Fees
 
 
[SIGNATURE PAGE FOLLOWS]
 
 
 
 
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives, effective as of the Effective Date.
 
 
 
 
DARA BioSciences, Inc.
   
By:
/s/ Chris Clement
Name:
Chris Clement
Title:
Chief Executive Officer
   
   
   
   
 
ONXEO S.A.
   
By:
/s/ Judith Greciet
Name:
Judith Greciet
Title:
Chief Executive Officer
 
 
 
 
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ONXEO/ORAVIG® US COMMERCIALIZATION AGREEMENT
 
 
Schedule 1 Onxeo Patents
 
 
 
 
BA-Ref
Title
Territory
Filing
Number
Filing Date
Grant Number
Grant Date
Expiration
Date
     
10/307,938
 
December 3,
2002
 
US6,916,485
July 12, 2005
September 11,
2022
PAT-05
Prolonged
release
bioadhesive
therapeutic
systems
United
States
11/113,072
April 25, 2005
US7,651,698
 
January 26,
2010
 
September 11,
2022
 
12/830,090
July 2, 2010
US8,518,442
 
August 27,
2013
 
July 23, 2022
   
 
Canada
 
2,455,633
July 23, 2002
2,455,633
May 1,2012
July 23, 2022
 
 
 
 
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ONXEO/ORAVIG® US COMMERCIALIZATION AGREEMENT
 
 
Schedule 2 Oravig Trademark
 
BA-Ref
Trademark
name
Territory
Filing
Number
Filing Date
Registration
Number
Registration
Date
TRA196
ORAVIG
United
States
85/188,886
 
December 2,
2010
 
3966483
May 24, 2011
 

Dara hereby confirms having received a copy of the Oravig logo.
 
 
 
 
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ONXEO/ORAVIG® US COMMERCIALIZATION AGREEMENT
 
 
Schedule 3
 
Supply Agreement
 
[SEPARATE DOCUMENT ATTACHED]
 
 
 
 
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SUPPLY AGREEMENT For Oravig®
 
 
This SUPPLY AGREEMENT (hereinafter the “Supply Agreement”) is entered into as of March 9, 2015 by and between:
 
ONXEO SA, a French societe anonyme a Conseil d ‘administration with a share capital of  € 10.136.051, having its registered office at 49, boulevard du General Martial Valin, 1 st Floor 75015 Paris, France, represented by its CEO, Mrs. Judith Greciet (referred to herein as “ONXEO”),
 
and
 
DARA Biosciences, Inc., a Delaware corporation with an address at 8601 Six Forks Road, Suite 160, Raleigh, North Carolina 27615, USA (“DARA”),
 
individually or collectively referred to herein as the “Party” or “Parties.”
 
PREAMBLE
 
This is the Supply Agreement referred to in the Co mm ercialization Agreement of even date between the Parties (the “Commercialization Agreement”) regarding ONXEO’s product Oravig® (the “Product”). This Supply Agreement contains the terms and conditions upon which ONXEO shall supply the Product to DARA for sales in the Territory.
 
All capitalized terms used but not otherwise defined in this Supply Agreement shall have the meanings given to such terms in the Commercialization Agreement.
 
1.
Supply of Product.
 
1.1        Supply by ONXEO. ONXEO, through an DARA approved manufacturer as provided in Section 1.2 below, will manufacture and supply to DARA such quantities of such final manufactured Product, packaged in bottles and with the package insert ready for sale (the “Product for Sale”) and physicians’ samples, as ordered by DARA and conforming to the approved regulatory specifications (the “Specifications”), to cover the entire requirements of DARA for the Product in the Territory or as otherwise provided under this Supply Agreement. ONXEO will be the exclusive supplier of the Product to DARA during the Supply Term (as defined below) unless otherwise expressly provided herein. Upon the date of release at the manufacturing site, the Product for Sale will have a remaining shelf life of at least eighty percent (80%) of the term determined by the competent Regulatory Authority, based on the approved shelf-life of thirty-six (36) months. For the avoidance of doubt, the date of release of the Product means the date of release for shipment by the qualified person of the manufacturing site.
 
Also for the avoidance of doubt, each Unit of Product for Sale is understood to be composed of a package of fourteen (14) tablets of Product for Sale and of two (2) tablets as physicians’ samples of Product, duly packaged and released.
 
1.2       Third Party Manufacturers.
 
(a)                    The Parties acknowledge and agree that ONXEO may use a third party to manufacture, test, store and supply the Product under this Supply Agreement. As of the Effective Date, Catalent, located in Schorndorft, Germany, is the third party manufacturer designated under this Section (the “Third Party Manufacturer”). In the event that ONXEO wishes to designate a different third party as the Third Party Manufacturer for manufacture, test and supply of the Product under this Supply Agreement, ONXEO shall obtain a prior written consent of DARA. The Parties acknowledge and agree that the terms “ONXEO shall” or “ONXEO will” or the like, shall be deemed to be followed by the words “or ONXEO’s designated Third Party Manufacturer will” or “or “ONXEO’s designated Third Party Manufacturer shall” or “ONXEO shall require that its designated Third Party Manufacturer shall” or the like, with respect to ONXEO’s manufacturing and supply obligations herein.
 
 
 
 
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(b)                    With regard to the Third Party Manufacturer or any successor to the Third Party Manufacturer, ONXEO warrants that each is and shall be qualified under applicable regulatory standards, including, without limitation, FDA regulations, and is credentialed to perform its obligations as a manufacturer to the standards of the current Good Manufacturing Practices requirements (“GMP”) requirements of the International Conference on Harmonisation (“ICH”). In addition, ONXEO agrees to transmit to any third party manufacturer that may be proposed to succeed Catalent any pre-contractual financial statements and due diligence questionnaire that DARA may reasonably request.
 
 
2.
Manufacturing Forecasts and Purchase Orders.
 
2.1             Commercial Launch. DARA shall promptly notify ONXEO in advance of the anticipated commercial launch of the Product in the Territory, which may change from time to time. The initial Purchase Order (as defined below) and Manufacturing Forecast (as defined below) associated with the commercial launch of the Product are attached as Schedule to the Commercialization Agreement.
 
2.2             Twelve Months Rolling Manufacturing Forecasts. DARA shall provide ONXEO on a quarterly basis with a written twelve (12)-month rolling manufacturing forecast of its estimated orders for such Product for Sale and for physicians’ samples, detailed on a per month basis (each a “Manufacturing Forecast”):
 
(a)                    The Manufacturing Forecast for the first twelve (12) months will be provided by DARA to ONXEO according to Section 2 .1. Each Manufacturing Forecast should mention the volume of each presentation of the Product.
 
(b)                    Each Manufacturing Forecast is a non-binding estimate and shall not obligate DARA to purchase the volume of such Product set forth in it; provided, however, the Manufacturing Forecast shall be binding upon DARA for the first six (6) months included in such forecast and DARA shall deliver Purchase Orders to ONXEO pursuant to Section 2.3 for each of these six (6) months.
 
(c)                    Months seven (7) through twelve (12) of each such forecast shall be non-binding, provided, however, that no monthly forecast for the first and second year of Commercialization of the Product may be reduced by more than fifty percent (50%) of the amount first forecast, and that forecasts for subsequent periods may not be reduced by more than thirty percent (30%) of the amount first forecast and that reductions may be only for the full minimum order quantities required hereunder, on a batch size and packaging configuration basis. For the avoidance of doubt, the total number of batches for a quarter included in the non-binding portion of a Manufacturing Forecast cannot be reduced by more than fifty percent (50%) of such total number of batches initially forecast for such quarter when that quarter becomes part of the binding forecast. Also for the avoidance of doubt, fifty percent (50%) of an odd number of batches will be rounded to the next highest even number for the purposes of reductions in the Manufacturing Forecast under this Section 2.2(c).
 
 
 
 
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(d)                    ONXEO may, within fifteen (15) business days of receipt of a Manufacturing Forecast from DARA, reject by written notice and solely for good cause (including, but not limited to, an increase by greater than fifty percent (50%) from the amount first forecast in the previous Manufacturing Forecast without reasonable evidence supporting such increase) any portion of such Manufacturing Forecast, in which case such Manufacturing Forecast shall not be binding on ONXEO. DARA shall replace any such rejected Manufacturing Forecast with a revised Manufacturing Forecast within fifteen (15) business days after receipt of notice of its rejection by ONXEO. For purposes of clarity, any Manufacturing Forecast which is not rejected within fifteen (15) business days of receipt by ONXEO shall be deemed to be accepted in its entirety and shall not be subject to subsequent rejection or modification except upon the mutual agreement of the Parties.
 
2.3             Purchase Orders. DARA shall order Product by submitting written purchase orders, in such form as the Parties shall agree from time to time (each a “Purchase Order”), to ONXEO specifying the quantities of Product ordered and the date of release for such Product. DARA shall submit each Purchase Order for Product using previously approved final artwork at least four (4) months in advance of the date of release and each Purchase Order for Product requiring changes to be made to the packaging of Product not less than six (6) months in advance of the date of release (such six (6) month period shall not begin until approval of any new artwork has been given by ONXEO). Purchase orders so submitted by DARA shall be deemed accepted by ONXEO if not rejected within two (2) weeks after receipt by ONXEO. ONXEO shall make the Product available to DARA Ex Works Third Party Manufacturer’s premises (Incoterms 2010). All transportation of the Product from the Third Party Manufacturer’s premises to their final place of destination shall be under DARA’s responsibility and at DARA’s cost with no further involvement from ONXEO. ONXEO shall observe standards common to the pharmaceutical industry and comply with the FDA Rules (as defined below) and the Specifications in wrapping and packaging the Product, as well as in preparing required documentation for importation of the Product into the Territory, all at no additional cost to DARA. DARA shall be responsible for import fees and duties. Any Purchase Order for the Product submitted by DARA to ONXEO shall reference this Supply Agreement and shall be governed exclusively by the terms contained herein. The Parties hereby agree that the terms and conditions of this Supply Agreement shall supersede any term or condition in any order, confirmation or other document furnished by DARA or ONXEO that is in any way inconsistent with these terms and conditions.
 
2.4             Quantity of Orders. DARA shall order, on a per Purchase Order basis, any multiples of [***] tablets of Product (minimum order quantity; theoretical batch size: [***] tablets). The minimum order quantity per packaging configuration for trade and physicians’ samples shall [***] Units of [***] tablets and [***] Units of [***] tablets, respectively.
 
3.
Price and Taxation.
 
3.1             Price. DARA will pay ONXEO: (i) [***] per Unit of fourteen (14) tablets (trade and trade for pediatric studies required by the Regulatory Authorities) (the “Supply Price”, provided that Units of fourteen (14) tablets purchased by DARA for such required pediatric studies are identical in all respects to such Units purchased for trade, including packaging; otherwise, any additional costs incurred by ONXEO in supplying such Units for pediatric studies shall be borne solely by DARA), and (ii) [***] per Unit of two (2) tablets (physicians’ sample) (the “Sample Price”).  The Supply Price and the Sample Price may be adjusted annually to a maximum increase of one and one-half percent (1.5%) per calendar year to reflect actual changes in costs to materials, labor and overhead of the Third Party Manufacturer, in the amortization of fixed assets used for production, and in other direct production costs on a year over year basis with respect to the Product. ONXEO shall provide details supporting any Supply Price and Sample Price adjustments.
 
 
 
 
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3.2             Invoices. ONXEO shall invoice DARA at the time the Product is released and ready to be shipped from the Third Party Manufacturer’s premises.
 
3.3             Method of Payment. All payments due hereunder to ONXEO shall be paid to ONXEO in USD not later than sixty (60) days following the receipt of the applicable invoice, unless such release of the Product is rejected in accordance with the provisions of Section 5.2 below. All payments shall be made by bank wire transfer of immediately available funds, without deduction for fees of the transmitting bank.
 
3.4             Taxes and Foreign Shipments. The Supply Price and the Sample Price are exclusive of any and all sales, use, excise or similar taxes, including customs taxes, which, if applicable, will be paid by DARA. It is understood and agreed by the Parties that no VAT is payable by DARA on the manufacture or transfer of the Product between ONXEO and DARA.
 
3.5             Late Payments. In the event that any payment due under this Supply Agreement is not made when due, the payment shall accrue interest from the date due to the date of payment at a rate of interest equal to one percent (1%) per month, calculated daily for each late payment (or if lower, the highest rate allowed by applicable law). The payment of such late payment interest shall not prevent ONXEO from exercising any other rights it may have as a consequence of any default of DARA.
 
4.         Release.
 
4.1             Release Terms. ONXEO shall deliver the Product ordered by DARA in such quantities and on such monthly release dates as are specified in the corresponding Purchase Order. ONXEO shall not be in breach of this Supply Agreement if release of the Product that conforms to the Specifications is within the margins of +/- fifteen percent (15%) of the quantity set forth in a Purchase Order and is made within the time permitted under such Purchase Order.
 
4.2             Delivery. Delivery of the Product for the Territory shall be made Ex Works Third Party Manufacturer’s premises (Incoterms 2010). The Product will be accompanied by a Certificate of Analysis (as defined below) acceptable to the applicable Regulatory Authority in the Territory and a Certificate of Conformity (as defined below) as well as any further documentation required by the relevant Regulatory Authority (including without limitation customs authorities) that DARA has previously notified ONXEO is necessary or is required under the Quality Agreement (as defined below). Except for the provision of documentation required by this Agreement, ONXEO shall in no case be responsible for import or customs formalities or related duties or taxes.
 
5.       Quality Assurance Control - Acceptance.
 
5.1            Specifications; Testing.
 
(a)                     Batch Testing. The Third Party Manufacturer shall perform analytical testing of each manufactured batch of the Product to be delivered to DARA, using the regulatory approved analytical methods and the Specifications, to verify that it meets its release Specifications, as required by the FDA Rules prior to release of each batch of such Product. In addition, the Third Party Manufacturer shall perform testing of bulk in-process Product in accordance with the NDA and applicable FDA Rules. For the purposes of this Supply Agreement, the term “FDA Rules” means any and all applicable laws, statutes, rules, regulations, standards, policies, orders or other requirements promulgated or subject to enforcement, regulation or administration by the United States Food and Drug Administration (the “FDA”), all as amended or modified from time to time, and includes, but is not limited to, current Good Manufacturing Practice regulations of the FDA as set forth in Title 21 of the U.S. Code of Federal Regulations §§ 210 and 211 (“cGMPs”).
  
 
 
 
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(b)                     Quality Control Problem. In addition, in the event ONXEO identifies an out of Specification result with respect to any batch sample of the Product to be supplied to DARA under this Supply Agreement, then ONXEO shall provide DARA with the full batch records corresponding to the applicable batch. Any such manufacturing deviations shall be managed in accordance with the provisions of the Quality Agreement.
 
(c)            Certificates of Analysis and Conformity. The Third Party Manufacturer shall also provide a certificate of analysis (the “Certificate of Analysis”) to DARA with each release of the Product supplied hereunder. Such Certificate of Analysis shall certify with respect to each release and batch (identified by batch number) (i) the quantity of the release, and (ii) that the Product delivered conforms to the Specifications, as well as any further information required by the relevant Regulatory Authority that DARA may have previously notified ONXEO is necessary. Additionally, each batch of the Product delivered by ONXEO to DARA shall be accompanied by batch records and a certificate of conformity (the “Certificate of Conformity”) which certifies that the batch was manufactured in conformity with the FDA Rules and manufacturing processes set forth in the NDA. DARA shall be under no obligation to accept any release of the Product without the accompanying Certificate of Analysis and Certificate of Conformity.
 
5.2             Acceptance and Rejection.
 
(a)             Inspection. DARA or its Affiliate(s) shall perform a visual inspection of each Product batch and review the accompanying Certificate of Analysis, Certificate of Conformity, and batch record (if requested). DARA may reject any Product batch that does not meet the Specifications. Within eighteen (18) calendar days after the release date by the Third Party Manufacturer of a Product batch, DARA will notify ONXEO (or its designated Affiliate or agent) by facsimile or e-mail, of the quantity and batch number as well as any evidence of any reasonably discernable defects in the Product or Product packaging.
 
(b)             Acceptance of the release. DARA shall have eighteen (18) calendar days from the release date of a Product batch as set forth in Section 5.2(a) in which to accept or reject the batch. If DARA, acting reasonably, determines that a batch does not conform to the Specifications or agreed upon disposition criteria set forth in the Quality Agreement, does not meet the agreed-upon margins of Section 4.1 for the amount of the Product delivered or is not released by the date of release listed in the Purchase Order, DARA may reject such batch by giving written notice to ONXEO within the said eighteen (18) calendar day timeframe. DARA must specify, in such notice, in reasonable detail the manner in which such batch fails to meet the requirements thereof.
 
(c)             Rejection of Product; Dispute Procedure. Following any notice of rejection of a Product batch by DARA, ONXEO and DARA shall discuss the basis for DARA’s rejection, and, unless ONXEO notifies DARA in writing that ONXEO agrees with DARA’s rejection or DARA withdraws its rejection of such Product batch within thirty (30) days of ONXEO’s receipt of such rejection notice, representative samples of the batch of such Product in question shall be submitted to a mutually-acceptable independent laboratory or consultant for analysis or review. The results of such evaluation shall be binding upon the Parties. The Parties shall share equally the cost of such evaluation except that the Party that is determined to have been incorrect in its determination of whether such Product batch should be rejected shall assume the responsibility for, and pay, the costs of any such evaluation and reimburse the other Party for any amounts previously paid by such other Party to the independent laboratory or consultant in connection with that determination.
  
 
 
 
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(d)             Replacement of Rejected Product. During any rejection discussions, ONXEO shall supply DARA with a replacement Product batch at no shipping cost to DARA and within a maximum of four (4) months of receipt of DARA’s notice of rejection or conclusion of the evaluation as set forth in Section 5.2(c) above, as applicable (which period shall be reasonably extended in the event that required packaging materials are not available for such replacement Product batch), which DARA shall purchase on the same terms as the batch that is the subject of the rejection discussions; provided, however, that if ONXEO agrees with DARA’s rejection of the Product batch or it is determined under the procedure in Section 5.2(b) above that such Product batch was correctly rejected, the replacement Product batch shall be provided by ONXEO at no additional cost to DARA other than the original price. Any rejected Product batch shall be returned to ONXEO with shipping charges paid by ONXEO or disposed of at ONXEO’s expense in accordance with ONXEO’s instructions. If DARA withdraws its rejection of such Product batch or it is determined under the procedure in Section 5.2(c) above that such Product batch should not have been rejected, DARA shall bear the cost of such replacement Product batch.
 
(e)             Quality Agreement. Before the manufacturing of the first commercial batch of the Product, the Parties will enter into an agreement that details the quality assurance obligations of each Party with respect to the Product (the “Quality Agreement”). The Quality Agreement will contain provisions concerning procedures employed by the Third Party Manufacturer in releasing the Product, including a condition that the Third Party Manufacturer not release any Product that fails to conform to the Specifications. The Parties shall amend the Quality Agreement from time to time to accommodate changes in manufacturing rules and practice. In case of any discrepancy between the provisions of this Supply Agreement and those of the Quality Agreement, the terms of the Quality Agreement shall control.
 
6.       Manufacture of Product.
 
6.1             Raw Materials. ONXEO shall be responsible for obtaining, and shall store at no cost to DARA, any raw materials, components, other ingredients and packaging materials (“Raw Materials”) required for the manufacture of the Product, in reasonable quantities consistent with DARA’s Purchase Orders.
 
6.2             Manufacture of Product. ONXEO shall manufacture the Product at Catalent, located in Schorndorf, Germany, in accordance with the Quality Agreement, the Specifications, the FDA Rules, and other applicable rules and regulations of the applicable Regulatory Authority with jurisdiction over the manufacture, use or sale of such Product, as then in effect. The Parties shall notify each other in writing within forty-eight (48) hours of any new instructions or specifications required by the applicable Regulatory Authority and of other applicable rules and regulations. The Parties shall confer with each other with respect to any response regarding such instruction or specification and the best means to comply with such requirements and the Parties shall bear the costs for implementing such changes in accordance with Section 6.4 below.
 
6.3             Labeling. DARA, at its sole cost, shall provide to ONXEO camera ready art (also called source files) for the final packaging of the Product for use in the Territory no later than upon transmission of the applicable Purchase Order. Before labeling and manufacturing, ONXEO shall ask for DARA’s final approval of artwork, and ONXEO shall use only such materials provided by DARA on the labels and packaging for such Product supplied to DARA and its designees. Presentation of the Oravig Trademark on the Product for sales in the Territory shall comply with the provisions regarding such Oravig Trademark under the Commercialization Agreement. Provided that ONXEO uses only materials provided by DARA on the labels and packaging for the Product supplied to DARA and its designees, DARA shall be responsible for ensuring the accuracy of all information contained on all labels and packaging for the Product for use in the Territory and for the compliance of all such labels and packaging with applicable laws, rules and regulations and all Regulatory Approvals for such Product in the Territory. Should DARA or ONXEO desire or be required pursuant to applicable laws, rules or regulations or any Regulatory Approval for Product to make any change in any labels or packaging for such Product, DARA shall be responsible for procuring the updating of all camera ready art and text associated with such change and providing such changes to ONXEO.
  
 
 
 
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6.4            Changes to the Specifications or to the Manufacturing Process.

(a)        Required Manufacturing Changes. With respect to changes to the Specifications or manufacturing process (but not changes to the labeling only) which are required by the FDA Rules or other applicable laws, rules and regulations, or by action (or inaction) of any Regulatory Authority, or by medical or scientific concerns as to the toxicity, safety, and/or efficacy of the Product (collectively, “Required Manufacturing Changes”), the Parties shall cooperate in reviewing the proposed Required Manufacturing Changes in accordance with the Quality Agreement and shall, thereafter, implement any agreed upon Required Manufacturing Changes in accordance with the T hir d Party Manufacturer’s change control procedures. ONXEO may not implement major Required Manufacturing Changes without receiving the prior written agreement of DARA. The cost of DARA-specific Required Manufacturing Changes shall be borne by DARA to the extent that such Required Manufacturing Changes are being required as a result of changes in the FDA Rules, any other laws, rules and regulations or conditions affecting the Territory only and no other market. In the event that DARA-specific Required Manufacturing Changes are also required to be made in any other markets of the Product outside of the Territory, ONXEO shall make commercially reasonable efforts to appropriately allocate the cost of such Required Manufacturing Changes to ONXEO’s partners who market and sell the Product in such markets. The cost of facility and/or ONXEO equipment-related Required Manufacturing Changes shall be borne by DARA. For DARA-specific Required Manufacturing changes, DARA shall pay all the costs of all remaining obsolete stock of the Product, all inventory of affected raw materials (at ONXEO’s actual acquisition cost), and all remaining obsolete work in process of the Product resulting from any such changes for the amount of the Product listed in the binding Manufacturing Forecast. In no event shall DARA be responsible for the costs of any DARA-specific Required Manufacturing Change necessitated by the failure of ONXEO or any Third Party Manufacturer to comply with any laws, rules, regulations or Specifications. In cooperating in making such changes, DARA shall be responsible for communicating with Regulatory Authorities with respect to the NDA or other marketing authorizations for the Product in the Territory.

(b)        Discretionary Manufacturing Changes. With respect to changes to the manufacturing process for the Product which are not Required Manufacturing Changes (collectively, “Discretionary Manufacturing Changes”), the Parties shall, to the extent commercially reasonable under the circumstances, cooperate in making such changes and the Party initiating such change(s) shall bear all the costs associated with and resulting from any such changes. Unless waived by DARA, ONXEO shall not implement a Discretionary Manufacturing Change without providing DARA with six (6) months written notice of such proposed change and, where appropriate, providing DARA with all documentation necessary to support a regulatory submission for such proposed change. If the proposed change is judged by DARA to require a prospective process validation or regulatory submission, then the costs to seek and execute such validation or submission shall be the responsibility of the initiating Party. All regulatory submissions will be filed by DARA.

(c)       Changes to Package Inserts and Labeling.
  
 
 
 
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i.       In the event that DARA desires to make a change directly to the package insert or labeling for the Product (each, a “Discretionary Packaging Change”), DARA shall notify ONXEO in writing. Any additional out-of-pocket costs and expenses incurred by ONXEO as a result of its implementation of such Discretionary Packaging Changes shall be borne solely by DARA, including the costs of obsolete inventory and works-in progress. Prior to incurring the costs and expenses, ONXEO will provide DARA with a good-faith, written estimate of such costs and expenses.

ii.       DARA shall inform ONXEO (or its designated Affiliate or agent) of any regulatory or legal requirements in the Territory for packaging or labeling of the Product and shall notify ONXEO of any changes to such requirements. ONXEO will implement such changes in the Territory in compliance with applicable laws and its documented change control procedures and inform DARA of any delays in the release of the Product caused thereby (e.g. lead time for purchase of materials, manufacturing time and set-up time, etc.). Any delivery by ONXEO (or its designated Affiliate or agent) of the Product with changes to packaging or labeling as set forth in this Section 6.4(c)(ii) that occurs within such commercially reasonable period not to exceed six (6) months and is made using commercially reasonable efforts shall not be deemed a breach of ONXEO’s obligations under this Supply Agreement. Changes to the package insert or labeling for the Product that are required by a Regulatory Authority or applicable laws in the Territory shall be discussed in good faith between ONXEO and DARA and shall be implemented by ONXEO as promptly as practicable in compliance with Regulatory Authority requirements, applicable laws, the Quality Agreement and ONXEO’s documented change control procedures. Any additional out-of- pocket costs and expenses incurred by ONXEO as a result of its implementation of changes made in accordance with this Section 6.4(c)(ii) shall be borne by DARA, including the costs of obsolete inventory and works- in progress, only for the Product listed in the binding Manufacturing Forecast.

6.5             Reprocessing and Reworking of Product. ONXEO shall not perform any reprocessing or reworking of any batch or lot of the Product in the Territory without the prior written consent of DARA.

6.6             Manufacturing Audit. ONXEO will permit DARA’s representatives to examine or audit the manufacturing services and documentation for the Product performed hereunder at the manufacturing premises at which the work is conducted: (i) once every two (2) calendar years, upon reasonable advance written notice and not less than thirty (30) working days, during regular business hours, solely to determine that the manufacturing services are being performed in accordance with the Specifications, the FDA Rules and the Quality Agreement and this Supply Agreement (“Audit”), and (ii) without limitation of frequency, during regular business hours, in the event a serious issue arises with the performance of the manufacturing services or a negative finding results from any inspection pursuant to Section 6.7 below (“Audit for Cause”). DARA shall bear all costs and expenses for its own representatives during each Audit on manufacturing site, except for Audits for Cause, the costs of which shall be borne by ONXEO.

6.7             Inspections by Regulatory Authorities. Each Party shall notify the other within seventy-two (72) hours of becoming aware of any inspection, or scheduled inspection, relating to the Product by any Regulatory Authority in the Territory, and shall comply with any requirements of law or applicable regulations with respect to any such inspection. Should such an inspection require access to a Third Party site, ONXEO shall arrange for such access. Solely to the extent that the inspection relates to the Product, the costs related to such inspection will be at DARA’s expense. DARA shall have the right to be present for and observe any inspection of ONXEO or a Third Party Manufacturer (or other related premises) by any Regulatory Authority in the Territory and the right to receive a copy of all available documentation relating to such inspection within seven (7) days of receipt by ONXEO. Either Party shall promptly send to the other Party within forty-eight (48) hours of receipt a copy of any reports, citations, or warning letters from a Regulatory Authority to the extent such documents relate to or affect the Product.
  
 
 
 
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6.8             Supply Failure. In the event that ONXEO fails to fulfill any two (2) consecutive Purchase Orders submitted by DARA where such Purchase Orders have not otherwise been rejected by ONXEO pursuant hereto, then DARA shall have the right, but not the obligation, to source the Product from a third party manufacturer until such a time as ONXEO has demonstrated to DARA’s reasonable satisfaction that it will not experience supply failures on a going-forward basis. For the purposes of this provision, a failure to fulfill a Purchase Order shall occur when any Purchase Order not otherwise rejected by ONXEO is not satisfied with at least seventy-five percent (75%) of the ordered quantity of Product or when any such quantities ordered are not delivered within forty-five (45) days of the agreed upon delivery date.
 
7.       Regulatory.
 
7.1             Regulatory Compliance. Except as may otherwise be agreed, ONXEO shall comply with all regulatory requirements with respect to the Product imposed by applicable law upon ONXEO as the manufacturer of such Product, including without limitation the FDA Rules. DARA shall comply with all regulatory requirements with respect to the Product that are imposed by applicable law upon DARA as the holder of any Regulatory Approval for such Product. ONXEO shall, on a timely basis, provide DARA with information in ONXEO’s possession relevant to its role as the manufacturer of the Product that is reasonably necessary for and relevant to DARA’s obligations hereunder in complying with such regulatory requirements.
 
7.2             Recall of Product. DARA shall be responsible for any recall, market withdrawal or field correction of the Product (a “Recall”; when used as a verb, “Recall” means to engage in a Recall). ONXEO shall cooperate with DARA in the event of any Recall and provide such assistance in connection therewith as DARA may reasonably request.
 
(a)       In the event DARA should be required or should voluntarily decide to initiate a Recall, DARA shall timely notify ONXEO and provide a copy of its recall letter and in no event later than twenty-four (24) hours of such decision by DARA. In conjunction with such Recall, ONXEO shall provide assistance in any investigation reasonably required to determine the cause and extent of the problem causing the Recall.

(b)       In the event that ONXEO independently believes that a Recall may be necessary or appropriate, ONXEO shall timely notify DARA, and in no event later than forty-eight (48) hours of such decision by ONXEO, and reasonably cooperate with DARA concerning the necessity and nature of such action; provided, however, that ONXEO shall not contact the FDA regarding a Recall of the Product without first consulting with DARA.

(c)       All coordination of any Recall activities involving a Product shall be handled by DARA whether or not such action was initiated by DARA.
  
 
 
 
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(d)       In the event that the Product is Recalled as a result of (i) the supply by ONXEO of the Product that does not conform to the requirements set forth in this Supply Agreement or the Quality Agreement, (ii) ONXEO’s breach of this Supply Agreement or the Commercialization Agreement, including all Schedules thereto, or (iii) the grossly negligent or intentionally wrongful act of ONXEO or its representatives (including any Third Party Manufacturer), then ONXEO shall bear all of the costs and expenses of such Recall, including, without limitation, expenses related to communications and meetings with all required Regulatory Authorities, expenses of replacement stock, the cost of notifying customers and costs associated with shipment of recalled Product from customers and shipment of an equal amount of replacement Product to those same customers. In the event that any Product is recalled for any other reason, then DARA shall bear all of the costs and expenses of such recall, including without limitation expenses related to communications and meetings with all required Regulatory Authorities, expenses of replacement stock, the costs of notifying customers and costs associated with shipment of recalled Product from customers and shipment of an equal amount of replacement Product to those same customers, provided, that, to the extent that the reason for any Recall of Products hereunder is in part the responsibility of ONXEO and in part the responsibility of DARA as provided in this paragraph, then the expenses shall be allocated in an equitable manner between the Parties.

7.3             Compliance with Laws. ONXEO shall comply with all applicable present and future orders, regulations, requirements and laws of any applicable Regulatory Authority with respect to the manufacture and supply of the Product pursuant to this Supply Agreement, including without limitation all laws and regulations of the Territory applicable to the transportation, storage, development, use, handling and disposal of hazardous materials. ONXEO represents and warrants to DARA that it has and will maintain during the Supply Term all government permits, including, without limitation, health, safety and environmental permits, necessary for the actions and procedures that it undertakes with respect to the manufacture and supply of Product pursuant to this Supply Agreement.
 
7.4             Documentation. ONXEO shall keep for duration of five (5) years all documentation notes, data and records of the work performed under this Supply Agreement (including, without limitation, batch records). Each Party shall maintain complete and adequate records pertaining to the methods and facilities used for the manufacture, processing, testing, packing, labeling, holding and distribution of the Product in accordance with all applicable domestic and foreign laws and regulations so that such Product may be used in humans.
 
7.5             Product Transportation. DARA shall provide for appropriate transportation of the Product in accordance with applicable rules and regulations in the Territory.

8.       Representations and Warranties.
 
8.1             Product Warranty. ONXEO represents and warrants that the Product delivered hereunder will (i) be manufactured by ONXEO in accordance with all applicable Regulatory Approvals for such Product, the FDA Rules and with current GMP and other applicable rules and regulations of any applicable Regulatory Authority, and (ii) conform to the applicable Specifications for such Product at the time of delivery to DARA. Unless otherwise expressly provided, this warranty is the only warranty made by ONXEO with respect to the Product delivered hereunder, and may only be modified or amended by a written instrument signed by a duly authorized officer of ONXEO and accepted by DARA.
 
8.2             Disclaimer. Except as expressly set forth herein and not in derogation of any obligation for indemnification hereunder, ONXEO EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF DESIGN, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
 
8.3             Applicable Law and Jurisdiction. The applicable law, jurisdiction and dispute resolution provisions of the Commercialization Agreement shall apply to this Supply Agreement as if set forth herein in full.
  
 
 
 
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8.4             Limitation of Liability. EXCEPT FOR LIABILITY FOR BREACH OF CONFIDENTIALITY OBLIGATIONS, NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS SUPPLY AGREEMENT; provided, however, that this Section 8.4 shall not be construed to limit (a) either Party’s indemnification obligations under the Supply Agreement or the Commercialization Agreement, or (b) either Party’s liability for (i) death or personal injury, or (ii) gross negligence, willful misconduct, or fraud under the Supply Agreement.
 
9.       General.
 
9.1             Third-Party Beneficiary Rights of DARA. To the fullest extent permitted by applicable law as applied to any agreement by ONXEO with the Third Party Manufacturer (but only if so permitted), DARA shall be deemed a third-party beneficiary of ONXEO under its agreement with a Third Party Manufacturer and DARA shall have the right to assert any and all rights of ONXEO under any such agreement with a Third Party Manufacturer, including, without limitation, the right to initiate litigation on behalf of ONXEO against the Third Party Manufacturer. ONXEO shall take such action to enforce its rights under such agreement as may be reasonably necessary in order to secure compliance with the requirements of this Supply Agreement.
 
9.2            Indemnification.
 
(a)        Indemnification by ONXEO. ONXEO hereby agrees to save, defend, indemnify and hold DARA and its respective Affiliates, directors, officers, employees, agents and consultants (each, an “DARA Indemnitee”) harmless from and against any and all demands, liabilities, expenses and/or losses, including costs of defense and settlement and reasonable attorneys’ fees (individually “Loss” and collectively, “Losses”), to which any DARA Indemnitee may become subject as a result of any claim, demand, action or other proceeding by any Third Party to the extent such Losses arise directly or indirectly out of (a) the breach by ONXEO of any warranty, representation, covenant or agreement made by ONXEO in this Supply Agreement; or (b) gross negligence or willful misconduct in the performance of obligations under this Supply Agreement; except, in each case, to the extent such Losses result from the gross negligence or willful misconduct of any DARA Indemnitee or the breach by DARA of any warranty, representation, covenant or agreement made by DARA in this Supply Agreement.

(b)        Indemnification by DARA. DARA hereby agrees to save, defend, indemnify and hold ONXEO, and its respective Affiliates, directors, officers, employees, agents and consultants (each, a “ONXEO Indemnitee”) harmless from and against any and all Losses to which any ONXEO Indemnitee may become subject as a result of any claim, demand, action or other proceeding by any Third Party to the extent such Losses arise directly or indirectly out of (a) the breach by DARA of any warranty, representation, covenant or agreement made by DARA in this Supply Agreement; or (b) gross negligence or willful misconduct in the performance of obligations under this Supply Agreement; except, in each case, to the extent such Losses result from the gross negligence or willful misconduct of any ONXEO Indemnitee or the breach by ONXEO of any warranty, representation, covenant or agreement made by ONXEO in this Supply Agreement.

(c)      Indemnification Procedure.
(i)           Notice of Claim . The indemnified Party shall give the indemnifying Party prompt notice (an “Indemnification Claim Notice”) upon its receipt of facts of any Losses or the discovery of fact upon which such inde mn ified Party intends to base a request for indemnification, provided, however, that the sole remedy of the indemnifying Party in the event such notice is delayed and prejudices its defense (and late receipt of notice shall not of itself prejudice defense) shall be not to indemnify any Losses that result from any delay in providing such notice. Each Indemnification Claim Notice must contain a description of the claim and the nature and amount of such Loss (to the extent that the nature and amount of such Loss is known at such time). The indemnified Party shall furnish promptly to the indemnifying Party copies of all papers and official documents received in respect of any Losses. All indemnification claims in respect of a Party, its Affiliates or their respective officers, employees, agents and consultants shall be made solely by such Party (the “Indemnified Party”).
  
 
 
 
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(ii)         Third Party Claims . The obligations of an indemnifying Party under this Section 9.2 with respect to Losses arising from claims of any Third Party that are subject to indemnification as provided herein (a “Third Party Claim”) shall be governed by and be contingent upon the following additional terms and conditions:
 
(1)        Control of Defense . At its option, the indemnifying Party may assume the defense of any Third Party Claim by giving notice to the Indemnified Party within thirty (30) days after the indemnifying Party’s receipt of an Indemnification Claim Notice. The assumption of the defense of a Third Party Claim by the indemnifying Party shall not be construed as an acknowledgment that the indemnifying Party is liable to indemnity any Indemnified Party in respect of the Third Party Claim, nor shall it constitute a waiver by the indemnifying Party of any defenses it may assert against any Indemnified Party’s claim for indemnification. Upon assuming the defense of a Third Party Claim, the indemnifying Party may appoint as lead counsel in the defense of the Third Party Claim any counsel selected by the indemnifying Party, unless the Indemnified Party provides an opinion of its counsel that there is a conflict of interest between the indemnifying Party and the Indemnified Party, in which case the counsel selected by the Indemnified Party (if any) shall act as lead counsel. In the event the indemnifying Party assumes the defense of a Third Party Claim, the Indemnified Party shall immediately deliver to the indemnifying Party all original notices and documents (including court papers) received by any Indemnified Party in connection with the Third Party Claim. Should the indemnifying Party assume the defense of a Third Party Claim, the indemnifying Party shall not be liable to the Indemnified Party for any legal expenses subsequently incurred by such Indemnified Party in connection with the analysis, defense or settlement of the Third Party Claim. In the event that it is ultimately determined that the indemnifying Party is not obligated to indemnify, defend or hold harmless an Indemnified Party from and against the Third Party Claim, the Indemnified Party shall reimburse the indemnifying Party for any and all costs and expenses (including costs of defense and settlement and reasonably attorney’s fees) and any Losses incurred by the indemnifying Party in its defense of the Third Party Claim with respect to such Indemnified Party.

(2)        Right to Participate in Defense . Without limiting Section 9.2(c)(ii)(l), any Indemnified Party shall be entitled to participate in, but not control, the defense of such Third Party Claim and to employ counsel of its choice for such purpose; provided, however, that such employment shall be at the Indemnified Party’s own expense unless (A) the employment thereof has been specifically authorized by the indemnifying Party in writing, or (B) the indemnifying Party has failed to assume the defense and employ counsel in accordance with Section 9.2(c)(ii)(l) (in which case the Indemnified Party shall control the defense).
  
 
 
 
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(3)        Settlement . With respect to any Losses relating solely to the payment of money damages in connection with a Third Party Claim and that will not result in the Indemnified Party’s becoming subject to injunctive or other relief or otherwise adversely affect the business of the Indemnified Party in any manner, and as to which the indemnifying Party shall have acknowledged in writing the obligation to indemnify the Indemnified Party hereunder, the indemnifying Party shall have the sole right to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Loss, on such terms as the indemnifying Party, in its sole discretion, shall deem appropriate. With respect to all other Losses in connection with Third Party Claims, where the indemnifying Party has assumed the defense of the Third Party Claim in accordance with Section 9.2(c)(ii)(l), the indemnifying Party shall have authority to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Loss, provided it obtains the consent of the Indemnified Party, without limitation on the right of the Indemnified Party to enter into any settlement reasonably necessary under the circumstances. The indemnifying Party shall not be liable for any settlement or other disposition of any Losses by the Indemnified Party that is reached without the consent of the indemnifying Party, unless such settlement or disposition was reasonably necessary under the circumstances.

(4)        Cooperation . Regardless of whether the indemnifying Party chooses to defend or prosecute any Third Party Claim, the Indemnified Party shall cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, provide such witnesses and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. Such cooperation shall include access during normal business hours afforded to the indemnifying Party to, and reasonable retention by the Indemnified Party of, records and information that are reasonably relevant to such Third Party Claim, and making the Indemnified Party and its employees and agents available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder, and the indemnifying Party shall re im burse the Indemnified Party for all its reasonable out-of-pocket expenses in connection therewith.

(5)        Expenses . Except as provided above, the costs and expenses, including fees and disbursements of counsel, incurred by the Indemnified Party in connection with any Third Party Claim shall be reimbursed on a calendar quarter basis by the indemnifying Party, without prejudice to the indemnifying Party’s right to contest the Indemnified Party’s right to indemnification and subject to refund in the event the indemnifying Party is ultimately held not to be obligated to indemnify the Indemnified Party.

9.3            Force Majeure. Each Party shall be excused from liability for the failure or delay in performance of any obligation under this Supply Agreement (other than payment obligations) by reason of any event beyond such Party’s reasonable control including but not limited to Acts of God, fire, flood, explosion, earthquake, or other natural forces, war, civil unrest, destruction, any strike or labor disturbance, or any other event similar to those enumerated above. Such excuse from liability shall be effective only to the extent and duration of the event(s) causing the failure or delay in performance and provided that the Party has not caused such event(s) to occur. Notice of a Party’s failure or delay in performance due to force majeure must be given to the other Party within ten (10) days after its occurrence. All delivery dates under this Supply Agreement that have been affected by force majeure shall be tolled for the duration of such force majeure. Notwithstanding the foregoing, should the event(s) of force majeure suffered by a Party extend beyond a four (4) month period, the other Party may then terminate this Supply Agreement by notice to the non- performing Party.
 
9.4            Term; Termination.
  
 
 
 
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(a)              The Supply Agreement will commence upon the entry into effect of the Commercialization Agreement and shall continue in effect thereafter, unless earlier terminated, until the expiration of the Commercialization Agreement (the “Supply Term”). However, for so long as ONXEO offers commercial supplies and samples of the Product for resale in the Territory, DARA will obtain such commercial supplies and samples of the Product, for itself and its sublicensee(s), solely from ONXEO. Should ONXEO determine that it will no longer offer commercial supplies and samples of the Product for resale in the Territory, ONXEO shall give to DARA twelve (12) months’ prior notice of its cessation of such supply. During such notice period, and for three (3) months thereafter, ONXEO shall provide DARA with reasonable consultation and technical assistance in order to ensure supply without interruption of commercial quantities and samples of Product to DARA for sales in the Territory, and assist with a transfer of manufacturing technology controlled by ONXEO to a manufacturing facility designated by DARA, provided that ONXEO shall not   be   required to incur or pay any out-of-pocket expenses in this regard. In particular, ONXEO shall authorize DARA to negotiate during such notice period with ONXEO’s third-party contract manufacturing organization (currently Catalent) with respect to a commercial supply arrangement to ensure the continuity of supply of the Product.
 
(b)             Expiration or termination of this Supply Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination. Except as set forth below or elsewhere in this Supply Agreement, the obligations and rights of the Parties under the following provisions of this Supply Agreement shall survive expiration or termination of this Supply Agreement:
 
Section 3 — Price and Taxation
Section 5 — Quality Assurance Control - Acceptance
Section 6 — Manufacture of Product
Section 7 — Regulatory
Section 8 — Representations and Warranties
Section 9 — General (limiting Section 9.1 to three (3) years following expiration or termination)
 
With regard to Sections 5, 6 and 7, they shall survive expiration or termination only with respect to the Product supplied to DARA hereunder prior to such expiration or termination, and only for three (3) years thereafter.
 
9.5            Entire Agreement; Modification. This Supply Agreement and the agreements contemplated hereunder constitute the entire agreement of the Parties with respect to the subject matter hereof. In case of any discrepancy or contradiction in the provisions of the main text of this Supply Agreement and any agreement contemplated hereunder, the terms of this Supply Agreement shall control, unless otherwise provided herein. This Supply Agreement supersedes all prior and contemporaneous agreements and communications, whether oral, written or otherwise, concerning any and all matters contained herein. Each Party acknowledges that, in entering into this Supply Agreement, it has not relied on, and shall have no right or remedy in respect of, any statement, representation, assurance or warranty (whether made negligently or innocently) other than as expressly set out in this Supply Agreement. Each Party waives all rights and remedies which, but for this Section 9.5, might otherwise be available to it in respect of such statement, representation, assurance or warranty. This Supply Agreement may only be modified or supplemented only in a writing expressly stated as being for such purpose and duly signed by the Parties to this Supply Agreement.
  
 
 
 
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9.6            Relationship between the Parties.   The Parties’ relationship, as established by this Supply Agreement, is solely that of independent contractors. This Supply Agreement does not create any partnership, joint venture or similar business relationship between the Parties. Neither Party is a legal representative of the other Party and neither Party can assume or create any obligation, representation, warranty or guarantee, express or implied, on behalf of the other Party for any purpose whatsoever.
 
9.7             Non-Waiver. The failure of a Party to insist upon strict performance of any provision of this Supply Agreement or to exercise any right arising out of this Supply Agreement shall neither impair that provision or right nor constitute a waiver of that provision or right, in whole or in part, in that instance or in any other instance. Any waiver by a Party of a particular provision or right shall be in writing, shall be as to a particular matter and, if applicable, for a particular period of time, and shall be signed by such Party.
 
9.8             Assignment. This Supply Agreement and the rights established hereunder may not be assigned or transferred by either Party without the prior written consent of the other Party. Notwithstanding the foregoing, either Party may employ independent contractors, consultants, or sub-contractors to carry out its duties and obligations hereunder without the consent of the other Party; provided, further, that either Party may, subject to the concurrent assignment of the Commercialization Agreement and the requirements set forth in the Commercialization Agreement, assign this Supply Agreement to a third party acquiring all or substantially all of the assets of such Party relating to this Supply Agreement. This Supply Agreement shall be binding upon and inure to the benefit of the Parties’ respective successors and permitted assigns. The rights and obligations of the Parties under this Supply Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Supply Agreement shall be void.
 
9.9              No Third Party Beneficiaries. This Supply Agreement is neither expressly nor impliedly made for the benefit of any party other than those executing it.
 
9.10             Severability. If, for any reason, any part of this Supply Agreement is adjudicated invalid, unenforceable or illegal by a court of competent jurisdiction, such adjudication shall not affect or impair, in whole or in part, the validity, enforceability or legality of any remaining portions of this Supply Agreement. All remaining portions shall remain in full force and effect as if the original Supply Agreement had been executed without the invalidated, unenforceable or illegal part.
 
9.11             Notices. Any notice to be given under this Supply Agreement must be in writing and delivered either in person, by any method of mail (postage prepaid) requiring return receipt, or by overnight courier or facsimile confirmed thereafter by any of the foregoing, to the Party to be notified at its address(es) given below, or at any address such Party has previously designated by prior notice to the other. Notice shall be deemed sufficiently given and received for all purposes upon the earliest of: (a) the date of actual receipt; (b) if mailed, five (5) days after the date of postmark; or (c) if delivered by overnight courier, the next business day the overnight courier regularly makes deliveries.
 
If to DARA, notices must be addressed to:
 
DARA Biosciences, Inc.
8601 Six Forks Road, Suite 160
Raleigh, North Carolina 27615
USA
Attention: Chief Executive Officer
Telephone: 919-872-5578
Facsimile: 919-861-0239
  
 
 
 
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With a required copy to:
 
DARA Biosciences, Inc.
8601 Six Forks Road, Suite 160
Raleigh, North Carolina 27615
USA
Attention: General Counsel
Telephone: 919-872-5578
Facsimile: 919-861-0239
 
If to ONXEO, notices must be addressed to:
 
ONXEO SA
49, boulevard du General Martial Valin, 1st Floor
75015 Paris, France
Attention: Chief Executive Officer
Telephone: +33 145 58 71 03
Facsimile: +33 145 58 08 81

With a required copy to:
 
ONXEO SA
49, boulevard du General Martial Valin, 1st Floor
75015 Paris, France
Attention: Licensing & Legal Affairs Department
Telephone: +33 145 58 71 03
Facsimile: +33 145 58 08 81

9.12           Interpretation.
 
(1)             Captions & Headings . The captions and headings of clauses contained in this Supply Agreement preceding the text of the articles, sections, subsections and paragraphs hereof are inserted solely for convenience and ease of reference only and shall not constitute any part of this Supply Agreement, or have any effect on its interpretation or construction.
 
(2)             Days . All references to days in this Supply Agreement shall mean calendar days, unless otherwise specified.
 
(3)             Ambiguities . Ambiguities and uncertainties in this Supply Agreement, if any, shall not be interpreted against either Party, irrespective of which Party may be deemed to have caused the ambiguity or uncertainty to exist.

(4)             Counterparts . This Supply Agreement may be executed in two or more counterparts, each of which shall be deemed an original document, and all of which, together with this writing, shall be deemed one instrument.
 
[SIGNATURE PAGE FOLLOWS]
  
 
 
 
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In Witness Whereof , the Parties hereto have duly executed this Supply Agreement as of the Effective Date.
 

 
 
 
DARA BioSciences, Inc.
   
By:
/s/ Chris Clement
Name:
Chris Clement
Title:
Chief Executive Officer
   
   
   
   
 
ONXEO S.A.
   
By:
/s/ Judith Greciet
Name:
Judith Greciet
Title:
Chief Executive Officer
  
 
 
 
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ONXEO/ORAVIG® US COMMERCIALIZATION AGREEMENT
 
 
Schedule 4
 
Initial Purchase Order (4.1) and Manufacturing Forecast (4.2)  
  
 
 
 
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ONXEO/ORAVIG® US COMMERCIALIZATION AGREEMENT
 
 
Schedule 4.1
 
Initial Purchase Order
 
[***]
 
 
 
 
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ONXEO/ORAVIG® US COMMERCIALIZATION AGREEMENT
 
 
Schedule 4.2
 
Manufacturing Forecast
 
[***]
 
 
 
 
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ONXEO/ORAVIG® US COMMERCIALIZATION AGREEMENT
 
 
Schedule 5
 
Commercialization Plan
 
 

 
[***]
 
 
 
 
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ONXEO/ORAVIG® US COMMERCIALIZATION AGREEMENT
 
Schedule 6
 
Allocation of Annual FDA Establishment and Product Fees
 
 
 
Period Ending
 
Product Fee
Establishment Fee
September 30, 2015
The Product Fee shall be allocated [***] to Onxeo (corresponding to [***] and [***] to Dara (corresponding to [***].
 
 
Dara shall be responsible and pay for the entire sum of the Establishment Fee allocable to the Product in this period.
Thereafter
Dara shall be responsible and pay for the annual FDA Establishment and Product Fees allocable to the Product in connection with the Product.
 
Should any amounts payable by Dara be paid by Onxeo, Dara shall reimburse Onxeo for such amounts within thirty (30) days of receipt of an invoice therefor.
 
The Product Fee payable by Onxeo or its contract manufacturer shall be allocated by Onxeo among the holders of the new drug applications for products manufactured at the relevant establishment on an equitable basis in light of the manufacturing of such products during the applicable period.
 
 
 
 
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ONXEO
 
Paris, 9 March, 2015
 
CONFIDENTIAL
 
DARA Biosciences, Inc.
8601 Six Forks Road, Suite 160
Raleigh, North Carolina 27615 USA
 
 
Dear Sirs:
 
Reference is made to the Commercialization Agreement of even date between our companies relating to the Commercialization of ORAVIG® in the United States (the “Agreement”). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Agreement.
 
As a special accommodation to Dara Biosciences, Inc. (“Dara”), to take account of inventories of Product previously sold by Vestiq Pharmaceuticals, Inc. and held by wholesalers in the Territory, Onxeo S.A. (“Onxeo”) agrees to provide Dara with up [***] trade Units of Product at a price of [***] per Unit for Units delivered to Dara in 2015, provided, however, that:
 
1.
Such Units are supplied by Dara solely to wholesalers that hold inventory of Product as of the Effective Date of the Agreement (the “Existing Inventory”);
 
2.
Such Units are supplied to such wholesalers without charge (other than for such reasonable shipping, handling and other administrative charges as Dara may negotiate with such wholesalers);
 
3.
For each Unit so supplied, the wholesaler to which they are delivered certifies to the destruction of, or returns to Dara solely for purposes of destruction, a Unit of Product from the Existing Inventory;
 
4. 
Dara promptly destroys any Units of Product so returned to it by wholesalers;
 
5.
Dara provides Onxeo with certificates prepared by Dara or such wholesalers attesting to the destruction of the Units of Product so replaced, no later than sixty (60) days after the delivery by Dara to the wholesalers of the replacement Units of Product; and
 
6.
Dara delivers to Onxeo, on a quarterly basis, a summary report of the replacement Units of Product supplied to wholesalers under this letter agreement.
 
As its agreed contribution to support this inventory replacement program, Onxeo will issue to Dara a credit note in an amount equal to [***] per trade Unit so delivered Dara in 2015, promptly upon receipt of payment for such Units, such credit note to be applied against the Supply Price or Sample Price of Product supplied at the Supply Price or Sample Price under the Commercialization Agreement.
 
The per Unit purchase price the credit amount noted above will apply with respect to trade Units delivered as provided herein in 2015. In the event that deliveries are required after 2015, the purchase price and credit amount will be adjusted, applying for this purpose the price adjustment procedures set applicable to other supplies of trade Units.
 
Dara shall take all steps that Onxeo may reasonably request in order to ensure that compliance with the material conditions provided for above can be audited by Onxeo. Should any of such conditions not be materially satisfied, Dara shall, promptly upon Onxeo’s first demand, as liquidated damages, pay Onxeo the difference between the price per Unit provided for in this letter agreement and the Supply Price for each such Unit for which Dara is unable to demonstrate material compliance with the terms hereof.
 
Except as provided in this letter agreement with regard to the price at which such Units are supplied, the supply of such trade Units shall be made subject to the terms and conditions of the Supply Agreement.
 
This letter agreement is entered into in connection with the Agreement. Except as expressly provided herein, the Agreement shall remain in effect without modification.
 
 
 
 
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Please confirm your agreement with the above by signing and returning a copy of this letter agreement, whereupon it shall be binding on our companies.
 
Sincerely yours,
 
ONXEO S.A.
 
By: /s/ Judith Greciet
 
Name: Judith Greciet
 
Title: Chief Executive Officer
 
Accepted & Agreed:
 
DARA BioSciences, Inc.
 
By: /s/ Chris Clement
 
Name: Chris Clement
 
Title: Chief Executive Officer
 
 
 
Exhibit 4.21
 
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THIS OMITTED INFORMATION.
 
MASTER SERVICE AGREEMENT
 
This Master Service Agreement (this “Agreement”) made as of October   25 ,  2013 (the “Effective Date”) by and Alamo Pharma Services, Inc., a Texas corporation with offices at 77 N. Broad Street, Doylestown, PA 18901 (“Alamo”), and DARA Biosciences, Inc., a Delaware corporation with its principal place of business at 8601 Six Forks Road, Suite 160, Raleigh, NC 27615 (“Client”). Alamo and Client may each be referred to herein as a “Party” and collectively, the “Parties.”
 
RECITALS
 
A.            Alamo offers a wide range of services and offerings to clients in the pharmaceutical and biotechnology business.
 
B.            Client hereby engages Alamo, and Alamo hereby accepts such engagement, to provide various types of services pursuant to the terms hereof, each separate project agreement (each a “Project Agreement”), and Appendix to be executed by the Parties. Client and Alamo shall enter into a Project Agreement for each program they wish to be governed by the terms and conditions of this Agreement. Please see attached Project Agreement, Exhibit A, and Co- Promotion Agreement, Exhibit B.
 
1. 
Interpretation and Construction
 
(a)            The Parties desire for the terms and conditions set forth in this Agreement to govern the relationship between the Parties. Unless otherwise specifically set forth in a Project Agreement, in the event of a conflict or inconsistency between the terms and conditions set forth in this Agreement and the terms and conditions set forth in a Project Agreement, the terms and conditions set forth in this Agreement shall take precedence, govern and control.
 
(b)            The Parties hereby acknowledge that the terms set forth in this Agreement shall be incorporated by reference into each Project Agreement, as if fully set forth at length therein,
 
(c)            The Parties acknowledge that in addition to Alamo, certain of Alamo’s Affiliates may provide certain services to Client and may directly enter into a Project Agreement with Client, subject to Client’s prior written consent, pursuant to which such Alamo Affiliate shall provide certain services to Client, as set forth in detail in said executed Project Agreement. In such event, the Project Agreement shall confirm that this Agreement shall govern the relationship between Client and the particular Alamo Affiliate, and such parties agree to be bound by the terms set forth herein.
 
2. 
The Services
 
Client shall retain Alamo or one or more of its affiliates to provide services as set forth in one or more Project Agreements (hereinafter the “Services”). The general scope of work is set forth in Attachment A attached hereto.

3. 
Representations and Warranties of the Parties
 
(a)            Alamo represents warrants and covenants that:
 
(i)            it shall perform the Services in a professional, workmanlike manner and in accordance with those specifications to which Alamo and Client agree (in writing), and will perform the Services in accordance with any timelines agreed upon in writing;
 
(ii)            it shall maintain in full force and effect all necessary licenses, permits, approvals (or waivers) and authorizations required by law to carry out its obligations under this Agreement and any Project Agreement;
 
 
 
 
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(iii)            the execution, delivery and performance of this Agreement by Alamo and the consummation of the transactions) contemplated hereby has been duly authorized by all requisite corporate action; that the Agreement constitutes the legal, valid, and binding obligation of Alamo, enforceable in accordance with its terms (except to the extent enforcement is limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally and by general principles of equity); and that this Agreement and performance hereunder does not violate or constitute a breach under any organizational document of Alamo or any contract, other form of agreement, or judgment or order to which Alamo is a party or by which it is bound;
 
(iv)            the personnel assigned to perform Services rendered under this Agreement and any Project Agreement shall be capable professionally and duly qualified to perform the Services hereunder and in each Project Agreement;
 
(v)            it is not a party to any agreement which would prevent it from fulfilling its obligations under this Agreement and that during the term of this Agreement, it will not enter into any agreement to provide services which would in any way prevent it from performing the Services under this Agreement; and
 
(vi)            the Services shall be provided in compliance with all statutes, federal and state applicable laws, ordinances, rules or regulations of any governmental or regulatory authority including (but not limited to) the OIG Compliance Program Guidance for Pharmaceutical Manufacturers, the PhRMA Code on Interactions with Healthcare Professionals, the Accreditation Council for Continuing Medical Education requirements for continuing medical education, the American Medical Association Ethical Guidelines on Gifts to Physicians from Industry, the Federal Food, Drug and Cosmetic Act (“FDCA”), the Medicare/Medicaid anti-kickback statute, the Prescription Drug Marketing Act (“PDMA”), the Health Insurance Portability and Accountability Act, and similar state laws, rules and regulations (collectively, “Applicable Law”).
 
(b)            Client represents warrants and covenants that:
 
(i)            the execution, delivery and performance of this Agreement by Client and the consummation of the transaction(s) contemplated hereby has been duly authorized by all requisite corporate action; that the Agreement constitutes the legal, valid, and binding obligation of Client, enforceable in accordance with its terms (except to the extent enforcement is limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally and by general principles of equity); and that this Agreement and performance hereunder does not violate or constitute a breach under any organizational document of Client or any contract, other form of agreement, or judgment or order to which Client is a party or by which it is bound;
 
(ii)            Client will act in good faith to provide Alamo with the necessary materials, information, product training, and assistance required to enable Alamo to perform the Services in compliance with all Applicable Law. Certain Client obligations and responsibilities unique to a specific Project Agreement shall be specified within that Project Agreement;
 
(iii)            Client’s products shall be promoted under trademarks owned by or licensed to Client and are products which are either owned by Client and/or as to which Client has all lawful authority necessary to market and sell the products. Client represents and warrants that its trademarks, trade names and trade dress do not infringe on any intellectual property or product marketing rights of any other person or entity. Client further represents and warrants that the promotion of any Client product by Alamo does not infringe on any intellectual property or product marketing rights of any other person or entity;
 
(iv)            it is not a party to any agreement which would prevent it from fulfilling its obligations under this Agreement and any Project Agreement and that during the term of this Agreement and any Project Agreement, it will not enter into any agreement which would in any way prevent or restrict Alamo from performing the Services under an applicable this Agreement; and
 
(v)            it is solely responsible for reviewing and approving Client’s product promotional materials and literature and for ensuring all such materials comply with Applicable Law; and
 
 
 
 
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(vi)            the programs pursuant to which Alamo is performing the Services are Client’s Marketing Programs (see Exhibit A) that are being implemented by Alamo and as such, Client is responsible for ensuring that each program set forth in a Project Agreement adheres to Applicable Law. .
 
4. 
Independent Contractors: Alamo Personnel
 
(a)            Alamo and its directors, officers, employees and any persons providing services under the Agreement and any Project Agreement are at all times independent contractors with respect to Client. Persons provided by Alamo to perform Services shall not be deemed employees of Client. Neither this Agreement nor the Services to be rendered hereunder shall for any purpose whatsoever or in any way or manner create any employer-employee relationship between Alamo, its directors, officers, employees and any persons providing Services under the Agreement and Client. Client understands that Alamo may utilize independent contractors in connection with its performance of the Services.
 
(b)            Alamo is, and at all times shall remain, solely responsible for the human resource and performance management functions of all Alamo personnel provided to perform the Services. Alamo shall be solely responsible and liable for all disciplinary, probationary and termination actions taken by it, and for the formulation, content and dissemination of all employment policies and rules (including written disciplinary, probationary and termination policies) applicable to its employees, agents and contractors (individually, a “Alamo Employee” and collectively, “Alamo Employees”); provided that each Alamo Employee’s continued employment shall be contingent upon satisfaction of certain performance criteria established periodically by the Parties and with Client’s approval, and that the failure to meet such performance criteria shall be grounds, at Client’s option, for dismissal of the non-performing Alamo Employee in accordance with all Alamo human resources and employment policies and rules.
 
(c)            Alamo shall obtain and maintain worker’s compensation insurance and other insurances required for Alamo Employees performing the Services and acknowledges that Client does not, and shall not obtain or maintain such insurances, all of which shall be Alamo’s sole responsibility.
 
(d)            Alamo acknowledges and agrees that Alamo Employees are not, and are not intended to be or be treated as, employees of Client and that no such individual is, or is intended to be, eligible to participate in any benefits programs or in any Client “employee benefit plans” (as defined in Section 3(3) of ERISA) (“Client’s Benefits Plan”).
 
(e)            Except as otherwise set out in this Agreement or in a Project Agreement, Client shall have no responsibility to Alamo or any Alamo Employee for any compensation, expense reimbursements or benefits (including, without limitation, vacation and holiday remuneration, healthcare coverage or insurance, life insurance, pension or profit-sharing benefits and disability benefits), payroll-related or withholding taxes, or any governmental charges or benefits (including, without limitation, unemployment and disability insurance contributions or benefits and workers compensation contributions or benefits) that may be imposed upon or be related to the performance by Alamo or its employees, agents or contractors of the obligations under this Agreement or any Project Agreement, all of which shall be the sole responsibility of Alamo. To clarify, Client will not withhold any income tax or payroll tax of any kind on behalf of Alamo.
 
(f)            Limitations . Notwithstanding anything to the contrary in this Section 4, Alamo shall have no obligation or responsibility for any damages, liability, loss and costs, including but not limited to attorney’s fees (collectively, “Liability”) to the extent such Liability is attributed to either:
 
(i)            discriminatory and/or intentional acts of Client, its employees, agents or contractors; and
 
 
 
 
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(ii)            any benefits payable under any Client Benefits Plan, and any other bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other similar fringe or employee benefit plans, programs or arrangements that may be sponsored at any time by Client that cause, or are either alleged to cause or interpreted by any court or regulatory authority to cause, any Alamo employee to be reclassified as an employee of Client.
 
In the event any Liability is alleged against Alamo or its employees which is attributable to the acts or omissions, willful misconduct or gross negligence of Client (as set forth in this Section 4(f)(i) and (ii)), Client shall indemnify, defend, and hold harmless Alamo and its directors, officers, employees and contractors.
 
(g)            Limitations . Notwithstanding anything to the contrary in this Section 4, Client shall have no obligation or responsibility for any damages, liability, loss and costs, including but not limited to attorney’s fees (collectively, “Liability”) to the extent such Liability is attributed to either:
 
(i)            discriminatory and/or intentional acts of Alamo, its employees, agents or contractors; and
 
(ii)            any benefits payable under any Alamo Benefits Plan, and any other bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other similar fringe or employee benefit plans, programs or arrangements that may be sponsored at any time by Alamo that cause, or are either alleged to cause or interpreted by any court or regulatory authority to cause, any Client employee to be reclassified as an employee of Alamo.
 
In the event any Liability is alleged against Client or its employees who is attributable to the acts or omissions, willful misconduct or gross negligence of Alamo (as set forth in this Section 4(f)(i) and (ii)), Alamo shall indemnify, defend, and hold harmless Client and its directors, officers, employees and contractors.
 
(h)            Nothing contained herein shall create a partnership or co-venture between Alamo and client and neither party will hold themselves out as the partner of the other.
 
5. 
Alamo Compensation
 
(a)            In consideration of the performance of the Services, Client shall pay Alamo the fees, costs and expenses (collectively, the “Fees”) as set forth in each Project Agreement. Alamo shall bill Client monthly in advance and invoices shall be sent by Alamo to Client on a monthly basis for the Fees for Services. The base compensation is set forth in Exhibit “A” attached hereto.
 
(b)            In addition to the Fees set forth in a Project Agreement, certain necessary and reasonable expenses will be charged to Client on a pass-through basis. These expenses will be billed to Client at actual cost incurred by Alamo. Pass-through costs specific to a particular Service shall be set forth in the Project Agreement. The Client must agree on the pass-through services advance. Payments are due upon Client’s receipt of each applicable invoice from Alamo. If an invoice is not paid within thirty (30) days of Client’s receipt, there will be a finance charge of 1.5% of all amounts due that are not in dispute. All invoices shall be accompanied by descriptions of the Services performed and expenses incurred in sufficient detail to allow an audit of amounts due. Alamo shall retain a back-up copy of all support documentation for a period of 3 years.
 
6. 
Confidentiality
 
(a)            During the performance of the Services contemplated by this Agreement, each Party may learn confidential, proprietary, and/or trade secret information of the other Party (“Confidential Information”). The Party disclosing Confidential Information shall be referred to as the “Disclosing Party” and the Party receiving Confidential Information shall be referred to as the “Receiving Party.”
 
 
 
 
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(b)            Confidential Information means any information which is disclosed to or created by either party or which has value to the Disclosing party as not being generally known to that party’s competitors. Confidential Information includes, without limitation, the terms set forth in this Agreement, technical, trade secret, commercial and financial information about either Party’s (i) research or development; (ii) marketing plans or techniques, contacts or customers or a party’s products or services; (iii) organization or operations; (iv) business development plans (i.e., licensing, supply, acquisitions, divestitures or combined marketing); (v) products, licenses, trademarks, patents, other types of intellectual property or any other contractual rights or interests (including without limitation processes, procedures and business practices involving trade secrets or special know-how), (vi) pricing and financial information, and (vii) Batch records, communications and agreements with manufactures of pharmaceuticals, (viii) formula’s for products or potential products, (ix) New Drug Applications, Abbreviated New Drug Applications, pre-market notifications (501 (k)) filed with the FDA or other governmental services that is not publicly disclosed, (x) in the case of Alamo, the names and contact information (i.e. phone number, address and e-mail address) of the Alamo Employees, and (xi) in the case of client, all information and compilations of information about client’s products including the preferences of prescribing physicians, trends in URL, issues and problems with the products. The Receiving Party shall neither use nor disclose Confidential Information received from the Disclosing Party for any purpose other than as specifically allowed by this Agreement.
 
(c)            Upon the expiration or termination of this Agreement, the Receiving Party shall, at the request of Disclosing Party, return all tangible forms of Confidential Information, including any and all copies and derivatives of Confidential Information made by either Party or their employees as well as any writings, drawings, specifications, manuals or other printed or electronically stored material based on or derived from, Confidential Information, except that Receiving Party may retain one (1) copy for monitoring ongoing obligations hereunder. Any material or media not subject to return must be destroyed. The Receiving Party shall not use or disclose to third parties any Confidential Information or any reports, recommendations, conclusions or other results of work under this Agreement without prior consent of an officer of the Disclosing Party. The obligations set forth in this Section .6, including the obligations of confidentiality and non-use shall be continuing and shall survive the expiration or termination of this Agreement and the Project Agreement and will continue for a period of two (2) years from the date of such expiration or termination.
 
(d)            The obligations of confidentiality and non-use set forth herein shall not apply to the following: (i) Confidential Information at or after such time that it is or becomes publicly available through no fault of the Receiving Party; (ii) Confidential Information that is already independently known to the Receiving Party as shown by prior written records; (iii) Confidential Information at or after such time that it is disclosed to the Receiving Party by a third party with the legal right to do so; and (iv) solely with respect to the specific relevant process, order or request, Confidential Information required to be disclosed pursuant to judicial process, court order or administrative request, provided that the Receiving Party shall so notify the Disclosing Party sufficiently prior to disclosing such Confidential Information as to permit the Disclosing Party to seek a protective order.
 
7. 
Restrictions on Solicitation
 
(a)            Neither Party may solicit the employees or independent contractors of the other Party to become employees of, or consultants to, the other Party during the Term of this Agreement and any Project Agreement and for a one (1) year period following the termination of both this Agreement and any Project Agreement. The provisions of this Section 7 shall not apply with respect to either Party’s employees or independent contractors who seek employment from the other Party on their own initiative, such as, but not limited to, in response to a Party’s general vacancy announcement or advertisement. Furthermore, this section 7 shall not apply to independent contractors providing consulting services not related to the promotion of the purchase of products. Provided further that this section 7 shall not apply in the event that DARA determines, at its sole discretion, to establish its own internal sales force, and desires to hire all or a portion of the Alamo Employees providing Services.
 
 
 
 
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(b)            Client agrees during the Term of this Agreement and for one (1) year thereafter not: (i) to provide any contact information (including name, address, phone number or e-mail address) of any Alamo Employee to any third party which provides or proposes to provide Client with the same services being provided by Alamo pursuant to a Project Agreement, or (ii) to assist actively in any other way such a third party in employing or retaining such Alamo Employee. Client shall pay or cause the third party to pay Alamo $25,000 for each Alamo Employee so employed or retained as liquidated damages for breach of this Section 7(b).
 
8. 
Indemnification
 
(a)            Alamo shall indemnify and hold Client, its officers, directors, agents and employees harmless from and defend them against any and all third party liabilities, losses, proceedings, suits, actions, damages, claims or expenses of any kind, including court costs and reasonable attorneys’ fees (collectively, “Losses”) which are caused by: (i) any negligent or willful acts or omissions by Alamo, its agents, directors, officers, independent contractors, or employees, (ii) any breach of this Agreement or any Project Agreement by Alamo, its agents, directors, officers or employees; (iii) any action, suit or investigation by or on behalf of a governmental authority with respect to Ferralet® 90, Aquoral® or Binosto®; and (iv) any product liability claims, whether arising out of warranty, negligence, strict liability (including manufacturing, design, warning or instruction claims) or any other product based statutory claim for Ferralet® 90, Aquoral® or Binosto®.
 
(b)             Client shall indemnify and hold Alamo, its officers, directors, agents, and employees harmless from and defend against any and all Losses which are caused by: (i) any negligent or willful acts or omissions by Client, its agents, directors, officers, independent contractors, or employees, (ii) any breach of this Agreement or any Project Agreement by Client, its agents, directors, officers or employees, and (iii) any product liability claims, whether arising out of warranty, negligence, strict liability (including manufacturing, design, warning or instruction claims) or any other product based statutory claim for Soltamox®, Gelclair® and Bionect®.

(c)            In case any action, proceeding or claim shall be brought against one of the parties hereto (an “Indemnified Party”) based upon any of the above Claims and in respect of which indemnity may be sought against the other party hereto (the “Indemnifying Party”) such Indemnified Party shall promptly notify the Indemnifying Party in writing. The failure by an Indemnified Party to notify the Indemnifying Party of such Claim shall not relieve the Indemnifying Party of responsibility under this Section, except to the extent such failure adversely prejudices the ability of the Indemnifying Party to defend such claim. The Indemnifying Party at its expense, with counsel of its own choice, shall defend against, negotiate, settle or otherwise deal with any such claim, provided that the Indemnifying Party shall not enter into any settlement or compromise of any claim which could lead to liability or create any financial or other obligation on the part of the Indemnified Party without the Indemnified Party’s prior written consent. The Indemnified Party may participate in the defense of any claim with counsel of its own choice and at its own expense. The parties agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such claims. In the event that the Indemnifying Party does not undertake the defense, compromise or settlement of any claim, the Indemnified Party shall have the right to control the defense or settlement of such claim with counsel of its choosing.
 
(d)            Client shall reimburse Alamo for all agreed upon reasonable actual out-of-pocket expenses incurred by Alamo in connection with responses to subpoenas and other similar legal orders issued to Alamo in respect to Client’s product or the Services performed under this Agreement and the applicable Project Agreement. However, Client shall have no obligation to reimburse Alamo for any such expenses (and to the extent paid by Client to Alamo, shall be repaid by Alamo to Client) arising out of, in connection with or otherwise relating to actions or omissions of Alamo or its employees, officers, directors and/or affiliates that violate this Agreement or Applicable Law.
 
 
 
 
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9. 
Limitation of Liability
 
Neither Party shall be liable to the other Party with respect to any subject matter of this Agreement or any Project Agreement under any contract, tort, negligence, strict liability, breach of warranty (express or implied) or other theory for any indirect, incidental, special, exemplary, punitive, exemplary or consequential damages, nor for any loss of revenues or loss of profits, even if advised of the possibility of such damages. This limitation in this section 9 shall not apply to the parties indemnification obligations set forth in Section 8 above.
 
10. 
Intellectual Property; Ownership
 
(a)            Except as set forth in Sections 10(b) below, all documents, materials, reports and deliverables provided by Alamo to Client pursuant hereto whether or not patentable, copyrightable, or susceptible to any other form of legal protection which are made, conceived, reduced to practice or authored by Alamo, or Alamo’s employees, representatives or agents (if any) as a result of the performance of Services, or which are derived from use or possession of Client’s Confidential Information (collectively, the “Deliverables”) shall be the sole and exclusive property of Client. Each Deliverable constituting an original work shall be considered a work made for hire under applicable copyright laws. Subject to Section 10(b) below, Alamo hereby assigns and agrees to assign to Client all right, title and interest in all worldwide intellectual property rights in the Deliverables, including without limitation, patents, copyrights, and trade secrets.
 
(b)            Notwithstanding anything to the contrary set forth herein, to the extent any Deliverable or work made for hire include Alamo’s concepts, ideas, models, know-how, software, methodologies, technology, techniques, procedures, management tools, workshops, manuals, macros, data files, inventions, and other intellectual capital and property that Alamo has developed, created or acquired prior to, in the course of, or independent of performing Services under this Agreement (the “Alamo Materials”), Alamo shall retain exclusive ownership in such Alamo Materials. Alamo hereby grants Client a non-exclusive, non-transferable, royalty- free right and license, for it to use the Alamo Materials solely in connection with its use of the Deliverables created by Alamo in connection with the Services.
 
11. 
Term                        .                                        ,
 
The Agreement shall be in effect as of the Effective Date and shall remain in effect for three calendar years from the Effective Date, (the “Term”) or until such later date as may be set forth in a Project Agreement (it being understood that this Agreement will not terminate in the event the term set forth in a Project Agreement is longer than the term set forth herein). At the end of the Term, the Agreement shall automatically renew in one year terms unless either Party provides the other Party with at least sixty (60) days written notice prior to the end of the Term or extended Term, as applicable.
 
12. 
Termination
 
(a)            Subject to Section 11 above, this Agreement and any Project Agreement may be terminated by Alamo or Client upon giving written notice as follows:
 
(i)            by Alamo, if any undisputed payment to Alamo by Client is not made when due and such payment is not made within thirty (30) days from the date of written notice from Alamo to Client advising of such nonpayment;
 
(ii)            by either Party, in the event that the other Party has committed a material breach of this Agreement and such breach has not been cured within thirty (30) days of receipt of written notice from the non-breaching Party of such breach (provided that, during the thirty (30) day cure period for termination due to breach, each Party will continue to perform its obligations under the Agreement);
 
(iii)            by either Party, in the event the other Party is either debarred from federal contracting or is a “Sanctioned Entity.” For purposes hereof, a Sanctioned Entity is an entity that:
 
(A)            Is currently under indictment or prosecution for, or has been convicted (as defined in 42 C.F.R. § 1001.2) of: (1) any offense related to the delivery of an item or service under the Medicare or Medicaid programs or any program funded under Title V or Title XX of the Social Security Act (the Maternal and Child Health Services Program or the Block grants to States for Social Services programs, respectively), (2) a criminal offense relating to neglect or abuse of patients in connection with the delivery of a health care item or service, (3) fraud, theft, embezzlement, or other financial misconduct in connection with the delivery of a health care item or service, (4) obstructing an investigation of any crime referred to in (1) through (3) above, or (5) unlawful manufacture, distribution, prescription, or dispensing of a controlled substance; or
 
 
 
 
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(B)            Has been required to pay any civil monetary penalty regarding false, fraudulent, or impermissible claims under, or payments to induce a reduction or limitation of health care services to beneficiaries of, any state or federal health care program, or is currently the subject of any investigation or proceeding which may result in such payment; or
 
(C)            Has been excluded from participation in the Medicare, Medicaid, or Maternal and Child Health Services (Title V) program, or any program funded under the Block Grants to States for Social Services (Title II) program; or
 
(iv)            by either Party, in the event that the other Party has become insolvent or has been dissolved or liquidated, filed or has filed against it, a petition in bankruptcy and such petition is not dismissed within thirty (30) days of the filing, makes a general assignment for the benefit of creditors; or has a receiver appointed for a substantial portion of its assets.
 
(v)            by either Party with three (3) months’ prior written notice.
 
(b)            Upon the effective date of such termination, the parties shall have no further obligation to each other (other than those set forth in Sections 4, 6, 7, 8, 9, 10 and 13), except that Client shall pay the amounts set forth or provided for in any Project Agreement through the actual date of termination.
 
13. 
Venue and Jurisdiction
 
This Agreement shall be construed according to the laws of the State of Texas (without reference to any principles regarding conflicts of law) and any action brought by either Alamo or Client in connection with this Agreement shall be brought in the state or federal courts located in the State of Texas.
 
14. 
Miscellaneous
 
(a)            Each Party undertakes to maintain appropriate insurance in commercially reasonable amounts with financially capable carriers, including in the case of Client, product liability insurance in the amount of at least five million dollars $5,000,000. Each Party shall name the other Party as an additional insured on all liability insurance coverage. In addition, upon written request, each Party will provide the other with evidence of coverage complying with this Section. The Parties understand and agree that additional insurance requirements may be set forth in the Project Agreements. Any additional program specific insurance requirements may be set forth in a Project Agreement.
 
(b)            Neither Alamo nor Client may assign or transfer this Agreement or any Project Agreement or any of its rights, duties or obligations hereunder without the other Party’s prior written consent; provided, however, that either Alamo or Client may assign or transfer its rights, duties and obligations as part of an acquisition or purchase of Alamo or Client, without the prior written consent of the other Party when: (i) such assignment is to a successor-in-interest to all or substantially all of the ownerships interest or business assets of such Party whether in a merger, sale of stock, sale of assets or other similar transaction; and (ii) the successor is a financially capable business entity. Any permitted successor or assignee of this Agreement and the rights and/or obligations hereunder, will in writing (satisfactory in form and substance) to the other Party, expressly assume this Agreement and any existing Project Agreement and the rights and obligations hereunder. If such writing is not received, any proposed assignment or transfer need not be recognized and shall be null and void.
 
(c)            This Agreement supersedes all prior arrangements and understandings between Parties related to the subject matter hereof.
 
 
 
 
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(d)            Except for Client’s payment obligations, noncompliance with the obligations of this Agreement due to a state of force majeure, the laws or regulations of any government, regulatory or judicial authority, war, civil commotion, destruction of facilities and materials, fire, flood, earthquake or storm, shortage of materials, failure of public utilities or common carriers, and any other similar causes beyond the reasonable control of the applicable Party, shall not constitute a breach of contract.
 
(e)            If any provision of this Agreement is finally declared or found to be illegal or unenforceable by a court of competent jurisdiction, both Parties shall be relieved of all obligations arising under such provision, but, if capable of performance, the remainder of this Agreement shall not be affected by such declaration or finding.
 
(f)            This Agreement, together with each applicable Project Agreement (including any attachments or exhibits hereunder or thereunder), contains all of the terms and conditions of the agreement between the Parties and constitutes the complete understanding of the Parties with respect thereto. No modification, extension or release from any provision hereof shall be affected by mutual agreement, acknowledgment, acceptance of contract documents, or otherwise, unless the same shall be in writing signed by the other Party and specifically described as an amendment or extension of this Agreement.
 
(g)            The form and content of any public announcement to be made by one Party regarding this Agreement, or the subject matter contained herein, shall be subject to the prior written consent of the other Party (which consent may not be unreasonably withheld), except as may be required by applicable law, in which event the other Party shall endeavor to give the other Party reasonable advance notice and review of any such disclosure. Notwithstanding the above, either Party may, in connection with its general marketing materials and without the consent of the other Party, list the name of the other Party in a non-descriptive fashion, in a list of the names of other similarly situated third parties that such Party does business with.
 
(h)             This Agreement may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall constitute one and the same document.

(i)             Any notices required or permitted under this Agreement shall be given in person or sent by first class, certified mail to:

To Client:
To Alamo
   
Address:
Address:
DARA Biosciences, Inc.
8601 Six Forks Road
Suite 160
Raleigh, NC 27615
Alamo Pharmacal Company
77 N. Broad Street, Doylestown, PA 18901
Attention:
Attention: Pete Marchesini
Fax: (919).861.0239
Fax: 210.581.1456
Copy To:
Copy To:
Michael Lerner, Esq.
Lowenstein Sandler LLP
Fax: (973) 597.6321
Lee Cusenbary
 
General Counsel
 
 
or to such other address or to such other person as may be designated by written notice given from time to time during the term of this Agreement by one Party to the other.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
(j)             Each of the Parties shall do, execute and perform and shall procure to be done and perform all such further acts deeds documents and things as the other Party may reasonably require from time to time giving full effect to the terms of this Agreement.

(k)             Except as otherwise expressly provided in this Agreement, each Party shall pay its own expenses and costs incidental to the preparation of this Agreement and to the consummation of the transactions contemplated by this Agreement or each Project Agreement.

15. 
Reporting
 
Attached hereto, in the Project Agreement, are terms setting forth incentive compensation services, reporting services and additional reporting and analytical services.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
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WHEREFORE, the Parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date.


ALAMO PHARMA SERVICES, INC.
DARA BIOSCIENCES, INC.
By: /s/ Pete Marchesini
By: /s/ David J. Drutz
Pete Marchesini
David J. Drutz
Title: Chief Operations Officer
Title: CEO and CMO
 
 
 
 
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EXHIBIT A
 
Services and Reporting

 
PROJECT AGREEMENT
 
Sales Representative Sharing Arrangement
 
This Project Agreement is made as of October 25, 2013 (the “Effective Date”), by and between Alamo Pharma Services, Inc., (“Alamo”), and DARA Biosciences, Inc., a Delaware corporation with its principal place of business at 8601 Six Forks Road, Suite 160, Raleigh, NC 27615 (“DARA”).and MISSION PHARMACAL COMPANY, a Texas corporation with offices at 10999 I.H. 10 West, San Antonio, Texas 78216 (“MISSION”). Alamo, DARA and Mission may each be referred to herein individually as a “Party” and collectively as the “Parties.” DARA and MISSION may be collectively referred to as “Clients.”
 
RECITALS
 
A.             Alamo entered into a Master Service Agreement (“MSA”) dated as October 25, 2013 with DARA, to which this Project Agreement (the “PA” or “Agreement”) shall be an exhibit and incorporated by reference.

B.            Alamo entered into a Master Service Agreement dated as September 1, 2011 with MISSION, to which this Agreement shall be an exhibit and incorporated by reference.
 
C.            Clients desire to share the costs and expenses of a sales force consisting of and managed by Alamo employees which will provide detailing services as set forth more fully in Exhibit A-l attached hereto.
 
1.
Interpretation and Construction
 
(a)             This PA is being entered into pursuant to Paragraph 2 of the respective Client’s MSAs and the Parties confirm that the MSAs shall govern the relationship between Alamo and the Parties under their respective MSAs. Unless otherwise specifically set forth herein, in the event of a conflict or inconsistency between the terms and conditions set forth in the MSAs and the terms and conditions set forth in this PA, the terms and conditions set forth in the MSAs shall take precedence, govern and control.

(b)            The Parties hereby acknowledge that the terms set forth in their respective MSAs are incorporated herein by reference, as if fully set forth at length therein.

(c)             By signing this Agreement, the Clients agree that confidential information about the sales force size, geographic reach and number of representatives may be shared on a limited basis to allow for open discussion of sales strategy and utilization of the sales force. No confidential information shall be shared by Alamo with a Client without prior verbal clearance by the Client who owns the confidential information. The Clients agree that is necessary to share the physician call list with both parties to allow for both Clients to agree to the sales force sharing arrangement under their respective MSAs.

2.
The Services
 
A detailed description of the services (the “Services”) are set forth on Exhibit A-l attached hereto and made a part hereof.
 
 
 
 
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THIS OMITTED INFORMATION.
 
3.
The Term
 
The term of this agreement will be for three (3) years beginning on October   25, 2013.

4.
Termination
 
(a)             Parties may terminate this PA in accordance with Section 12 of their MSAs.

(b)            Either Party may terminate this PA by providing the other Party with at least 3 months’ prior written notice.
 
(c)            In the case of: (i) termination of this Agreement by Client (except for termination by Client pursuant to Section 12(a) (ii), (iii) or (iv) of the MSAs), or (ii) at the end of Term (or any Additional Term), Client shall (in addition to all other payment obligations under this Agreement) promptly pay (or if paid by Alamo, promptly reimburse) Alamo for: the balance due any expenses or future financial obligations directly related to the promotion of the Clients’ Products.
 
(f)            Any proposed transfer of Equipment to Client(s) shall be subject to Client establishing its own relationship and credit with the entity that Alamo contracted with to lease or rent such Equipment.
 
5.
Fees
 
Set forth on Exhibit B are the costs and fees to be paid by Clients to Alamo for the performance of the Services.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
WHEREFORE, the Parties hereto have caused this PA to be executed by their duly authorized representatives on the day and year first above written.

 
ALAMO PHARMA SERVICES, INC.
DARA BIOSCIENCES, INC.
By: /s/ Pete Marchesini
By: /s/ David J. Drutz
Pete Marchesini
David J. Drutz
Title: Chief Operations Officer
Title: CEO and CMO
   
   
   
MISSION PHARMACAL COMPANY
 
By: /s/ Thomas J. Dooley
 
Name: Thomas J. Dooley
 
Title: Chief Financial Officer
 
 
 
 
 
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EXHIBIT A-l
 
PROJECT SCOPE
 
Clients are to provide the following:
 
 
•  
Manufacturing of products
 
•  
QA/QC
 
•  
Regulatory/compliance policy and approvals
 
•  
Marketing Intelligence
 
•  
Marketing Plan, including completed detailing materials
 
•  
Sales or any third party data
 
•  
Territory Data and configuration                       ,
 
•  
Training materials
 
•  
Samples/Sale Literature, Coupons, and other marketing materials
 
•  
Incentive Compensation Design and Administration
 
•  
Incentive Compensation Payments as agreed upon
 
 
Alamo shall provide the following (Alamo Sales Force or Shared Sales Force):
 
 
•  
Recruiting/onboarding process
 
•  
20 representatives (Salary and benefits)
 
•  
operational support for 2 District Managers Project management (SFA/IT, LMS, Concur Expense Reporting)
 
•  
Operational Training and Learning Platform
 
•  
Fleet
 
•  
Email/voicemail
 
•  
Payroll
 
•  
Concur Expense Reporting
 
•  
Laptops/Software LMS
 
•  
SFA/IT
 
•  
Sample Accountability
 
 
Pass through items (paid by Alamo with costs passed through to and approved by Client):
In addition to the fees, certain expenses will be charged to DARA on a pass-through basis. These expenses will be billed to Client at actual cost. Pass-through costs include:
 
 
•  
Expense related to turnover recruitment and training for new positions (interview expense and travel) Recruiting Costs ($ [***] /Rep) unless rep originally referred by DARA ($ [***] ) and ($ [***] /DM unless rep originally referred by DARA ($ [***] ), billed when rep/DM is hired.
 
•  
Please Note: No recruiting fees for direct referral to hire situations (no sourcing/screening of other candidates)
 
•  
Storage Units
 
•  
Internet & Cell Phone
 
•  
Sales Force Entertainment expenses as outlined by Client
 
•  
Direct Marketing Expenses Parking & Tolls
 
•  
Office Supplies and subscriptions Travel and Entertainment expenses Overnight travel and expense Gas/Gas card costs   .
 
•  
Costs for all meetings, including but not limited Initial training meeting and POA Meetings, May include Alamo or other extended project team costs related to these meetings.
 
•  
Development of Training Materials Backfill training
 
•  
Incentive compensation / contests plus all applicable taxes
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
EXHIBIT A-1 (continued)
SHARED DETAILING/SAMPLING SERVICES
 
Alamo shall provide Clients with a field force (the “Field Force”) which shall initially consist of twenty (20) sales representatives (“Shared Reps”). Shared Reps shall be managed by 2 DARA District Managers (District Managers and Shared Reps shall be referred to hereafter as the “Project Team”). Alamo will use its best efforts to ensure that members of the Project Team are located in an area that is geographically appropriate for the tasks that such member will perform. The Project Team shall increase in size based on the availability of Products. The expected Project Team is as follows:
 
December 23 , 2013 is the Deployment Date when 20 Shared Reps shall begin physician detailing and sampling of Clients’ products.
 
In the event Clients request additional Shared Reps or a change in the composition of the sales representatives (i.e.. changes from part-time to full-time or from tele-sales to part-time, etc.), the Parties agree to memorialize such changes and to set forth additional terms with respect thereto (i.e.. dates of proposed changes, proposed new Deployment Date for any new Shared Reps, etc.) in a written amendment to the PA signed by the two Clients and Alamo.
 
In connection with the promotion of Clients’ Products, Alamo shall provide the Clients with following services set forth in this Exhibit A-l (collectively, the “Services”).
 
 
I.
DEFINITIONS
 
(a)            “Call” means the activity undertaken by a Shared Rep to detail the Product, further described as a face-to-face presentation by a Shared Rep to a Target and will include providing the Target with Product samples and Product Literature (as directed by Clients). Sampling of the Product by Shared Reps shall be conducted in accordance with Appendix 1 attached hereto.
 
(b)            “Call Plan” means a plan that Client designs or assists Alamo in designing, which is intended to enhance the efficiency and effectiveness of the Shared Reps in making Calls. The Call Plan will be maintained by Alamo at its offices with a copy of such Call Plan maintained by Client at its offices, and may be amended or reconfigured from time to time solely at Client’s written request, with Client paying Alamo a fee, to be agreed upon in writing, for the performance of such amendment or reconfiguration services.
 
(c)            “Deployment Date” means TBD for the District Managers and Shared Reps.
 
(d)            “Product” or “Products” shall mean branded products of Clients and such other products as may be agreed by the Parties as long as the products are in other agreed upon therapeutic areas.
 
(e)             “Product Literature” shall mean promotional, informative and other written information concerning the Products. All Product Literature shall be prepared and provided by Clients. The Shared Reps shall utilize only the Product Literature when making Calls.

(f) “Targets” mean the licensed practitioners who are identified by Client as potential prescription writers and/or customers for the Product as provided by Clients to Alamo.
 
“Shared Rep” means a sales representative employed by Alamo and is a part of the Alamo Sales Force or Shared Sales Force, operating on behalf of DARA and Mission Pharmacal who is engaged under this Agreement to detail the Products.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
 
II.
HIRE STATUS, TRAINING AND MEETINGS
 
(a)            Alamo will provide the Shared Reps with salary, bonus, benefits, car allowance and mileage reimbursement or fleet, full operational support, and computers (including sales force automation software), and other agreed upon equipment. Alamo will further provide operational support which includes, SFA, Sample Management, Expense Reporting, and Learning Management System. It is understood and agreed that notwithstanding anything herein to the contrary, the Shared Reps are not employees of Clients for any purpose. Alamo shall indemnify and hold harmless Client from and against any and all claims or damages related to an assertion or in accurate claim that any Shared Reps are employees of Client.
 
(b)            Training - The training responsibilities of the Parties are as follows:
 
(i)            Alamo has trained members of the Project Team concerning: selling skills, compliance with Applicable Laws, use of sales force automation software, expense management policies, Alamo human resource policies, procedures and administration and other applicable Alamo internal human resource and general compliance policies and procedures sample accountability, and recruiting/onboarding.
 
(ii)            Clients shall train members of the Project Team concerning all respective Product-specific information including Product complaint-handling procedures, applicable specific Client health care compliance policies and Client customer service policies and procedures, orientation to Clients’ businesses, and adverse event reporting policies and procedures. The Parties agree to work together to mutually determine if, when, and at what cost additional training shall be provided to members of the Project Team.
 
 
III.
PERFORMANCE
 
If Clients independently observe or hear of such activity that it believes in good faith that the performance of any Shared Reps is unsatisfactory or is not in compliance with the provisions of this Agreement, Clients shall notify Alamo in writing. Alamo shall promptly address the performance or conduct of such person in accordance with its internal human resource policies. In the event that Client determines in good faith that a Mission Rep has violated any applicable law, regulation or policy, Client shall also notify Alamo in writing. Alamo shall promptly address the issue and take all reasonable and appropriate action (including but not limited to termination of such employee). No such action shall be contrary to Alamo’s internal human resource policies and procedures. It is further agreed that each Shared Rep’s continued employment shall be contingent upon satisfaction of certain performance criteria established periodically by the Parties and with DARA’s approval, and that the failure to meet such performance criteria shall be grounds, at DARA’s option, for dismissal of the non- performing Sales Rep.
 
 
IV.
CALLS AND TARGETS
 
The Shared Reps shall provide Product Literature and Product samples (as needed) when making Calls as directed by Clients. Clients are solely responsible for the content, production and distribution (to the Shared Reps) of the Product Literature. Each Shared Rep shall record information concerning each Call, including but not limited to Product sample distribution, and concerning the profile of each individual Target (or other physician called upon) on whom the Shared Rep calls.
 
 
V.
INCENTIVE COMPENSATION PLAN FOR SHARED REPS (If Applicable)
 
Alamo will collaborate with Clients in an effort to ensure the incentive compensation plan for the Shared Reps (the “IC Plan”) is compatible with Client’s expectations for program delivery assurance. Following acceptance of the IC Plan design, Alamo will create a plan communication presentation and plan document for field force acknowledgement and signature. Alamo will implement the approved IC Plan and provide quarterly payout files to Client.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
 
VI.
THE PRODUCTS
 
The Products shall be promoted by Alamo under trademarks owned by or licensed to Clients and are Products which Clients have all lawful authority necessary to market and sell the Products in all geographic areas where the Products are to be promoted under this PA. This Agreement does not constitute a grant to Alamo of any property right or interest in the Products or the trademarks owned by or licensed to Clients. Alamo recognizes the validity of and the title of Clients to all their respectively owned or licensed trademarks, trade names and trade dress in any country in connection with the Products, whether registered or not. Clients represent to Alamo that neither those trademarks, trade names and trade dress nor the promotion of the Products by Alamo infringes on any intellectual property right of any other person or entity.
 
 
VII.
BACKGROUND CHECKS
 
Alamo shall be responsible for performing drug testing and background checks of all Shared Reps. The background checks include Criminal Background Check, Social Security Check, Drug Screen, Motor Vehicle Record Check, Education Check, and Past Employer Check. Alamo further represents and warrants that it will perform or cause to be performed background checks to confirm that no Shared Rep:
 
(a)             is an excluded person on the Office of Inspector General’s List of Excluded Individuals/Entities and is not on the General Services Administration Excluded Parties List (as of the date the background check is performed);
 
(b)            is, so far as it is aware, an unfit or an improper individual for the performance of the Services;
 
(c)            is, so far as it is aware, engaged in any fraudulent or unlawful activity, or other inappropriate conduct as measured by the other requirements of this Agreement.
 
Mission shall institute prompt corrective or disciplinary action against any Shared Rep who fails to meet the requirements set forth in this Exhibit A-l. Alamo further agrees to cooperate and comply with all investigations by or on behalf of Clients with respect to wrongdoing, or alleged or suspected wrongdoing, in respect of any obligations of Alamo or any Shared Rep under this Agreement.
 
 
VIII. 
CALL REPORTING
 
Alamo shall provide Clients with standard reports as set forth on Appendix 1 on a monthly basis.
 
 
IX.
REPRESENTATIONS AND UNDERTAKINGS
 
(a)            Alamo represents that:
 
(i)            it, as well as the Shared Reps employed by Alamo, shall perform the implementation of Clients’ detailing program in a professional, workmanlike manner consistent with industry standards and in conformance with that level- of care and skill ordinarily exercised by other competent professional contract service organizations in similar circumstances and in accordance with those specifications and timelines which Alamo and Clients agree to (in writing) and which are not otherwise set forth herein or in the MSA. Alamo shall ensure that its employees or agents complete the Services in a timely manner and in accordance with the terms of this PA.
 
(ii)            the Shared Reps shall not add, delete or modify claims of efficacy or safety of the Products, nor make any changes (including but not limited to, underlining or otherwise highlighting any language or adding any notes thereto) in the Product Literature. Alamo shall only use and shall permit the Shared Reps to only use the Product Literature provided by Client. Alamo and the Shared Reps shall not develop, create, or use any other promotional material or literature or alter Product Literature provided by Client. Alamo shall immediately cease the use of any Product Literature when instructed to do so (in writing) by Client. Alamo shall use the Product Literature only for the purposes of this Agreement.
 
(iii)            it shall not, and shall ensure that all Shared Reps shall not, directly or indirectly, pay, offer or authorize payment of anything of substantial value (either in the form of compensation, gift, contribution or otherwise) to any person or entity in a position to order or purchase the Products contrary to any law;
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
(iv)            it shall not, and shall ensure that all Shared Reps shall not, directly or indirectly, make any representations or warranties relating to the Products that conflict, or are inconsistent with the Food and Drug Administration approved labeling for the Products; and
 
(v)            it shall ensure that each Shared Rep shall promote, market and sell the Products in accordance with all applicable laws;
 
(b)            Clients represent individually that:
 
(i)            it recognizes that for Alamo to comply with its obligations hereunder, it shall need the good faith cooperation of Client to provide Alamo with the necessary materials and assistance required to enable Alamo to perform the Services;
 
(ii)            the Services being provided by Alamo are in furtherance of Client’s program of marketing and promoting the Products and as such, Client is responsible for ensuring, and further, Client represents and warrants, that the Client’s program being implemented by Alamo pursuant to the terms hereof (but not the implementation thereof by Alamo), strictly adheres to all applicable state and federal statutes, laws, ordinances, and the rules and regulations of all governmental and regulatory authorities, including but not limited to, the Federal Food, Drug, and Cosmetic Act and the Prescription Drug Marketing Act;
 
(iii)            it shall ensure that none of its employees add, delete or modify claims of efficacy or safety of the Products, nor makes any changes (including but not limited to, underlining or otherwise highlighting any language or adding any notes thereto) in the Product Literature, during the training on the Products or during any communications with Alamo employees;
 
(iv)            it shall ensure that none of its employees working with the Project Team or in connection with the Services, directly or indirectly instruct any Alamo employee to pay, offer or authorize payment of anything of substantial value (either in the form of compensation, gift, contribution or otherwise) to any person or entity in a position to order, recommend or purchase the Products contrary to any law; and
 
(v)            neither it nor any of its employees directly or indirectly instruct any Alamo employee to make any representations or warranties relating to the Products that conflict, or are inconsistent with applicable laws or the Food and Drug Administration approved labeling for the Products.
 
(vi)            Client shall:
 
A.            provide Shared Reps with all Product Literature and Product samples.
 
B.             inform Alamo promptly of any changes which Client believes are necessary or appropriate in the Product Literature or in information concerning the Products in order to be in compliance with all applicable federal and state law, regulations and administrative guidance.
 
C.            respond appropriately and in a timely manner to any inquiry concerning a Product communicated to Alamo from any licensed practitioner and communicated by Alamo to Clients.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
EXHIBIT B
COMPENSATION - FIXED FEES, VARIABLE FEES AND PASS-THROUGH COSTS
 
 
I.
FIXED FEES
 
(a)            Recruiting Fees
 
Expense related to recruitment for new positions (plus interview expense and travel) Recruiting Costs ($ [***] /Rep) unless rep originally referred by DARA ($ [***] ) and ($ [***] /DM unless rep originally referred by DARA ($ [***] ), billed when rep/DM is hired; provided that there shall be no recruiting fees for direct referral to hires.
 
(b)            Implementation Fee
 
For the original 20 territories, and in the event Client desires to add sales representative to cover new territories or Products (in addition to the original deployment DARA Pharmaceuticals Reps set forth in Exhibit A), Client shall pay to Alamo Pharma Services an implementation fee (based on what Year the DARA Pharmaceuticals Reps are hired by Alamo Pharma Services) in accordance with the following:
 
Implementation Fee
 
Year One
Per Full-time Representative
 
$ [***]
Per District Manager
 
$ [***]

 
Implementation Training Fee
 
 
Payment
 
$ [***]
 
 
(i)             The implementation fee shall increase by four percent (4%) on an annual basis (i.e. a four percent increase in Years Two, Three and Four from the implementation fee in effect in the prior year).
 
(c)            Fixed Monthly Fee
 
Client shall pay Alamo Pharma Services a Fixed Monthly Fee as follows:
 
Alamo Field Force Member
Fixed Monthly fee Per
Territory
 
Per Full-Time DARA
Pharmaceuticals Rep
Territory
 
$ [***]
 
Per District manager
 
$ [***]
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
Financial Coverage of Fixed Fee (See Appendix II)
 
The Fixed Monthly Fee in the chart above shall be pro-rated based on the number of days in the first or last month that the person was employed. The Fixed Monthly Fee shall increase by four percent (4%) on an annual basis.
 
 
II.
PASS-THROUGH COSTS (With Approval from Clients)
 
In addition to the fees, certain expenses will be charged to Clients on a pass-through basis. These expenses will be billed to Client at actual cost. Pass-through costs include:
 
 
•
Expense related to turnover recruitment and training (plus interview expense and travel) Recruiting Costs ($ [***] /Rep) unless rep originally referred by DARA ($ [***] ) and ($ [***] /DM unless rep originally referred by DARA ($ [***] ), billed when rep/DM is hired. Please note: that if turnover occurs within the first 3 months of employment, Client will not be charged implementation and recruiting fee, but will be charged for travel and expense related to interviewing and re-training as a pass through cost. If turnover occurs after the first 3 months of employment Client will be responsible for implementation fee, recruiting fee, and travel and expense related to Interviewing and re­training.
 
•
It is generally expected that turnover will be in the range of 10-15% annually.
 
•
No recruiting fees for direct referral to hire situations (no sourcing/screening of other candidates)
 
•
Storage Units
 
•
Internet & Cell Phone
 
•
Sales Force Entertainment expenses as outlined by Client
 
•
Direct Marketing Expenses
 
•
Parking & Tolls
 
•
Office Supplies and subscriptions
 
•
Travel and Entertainment expenses
 
•
Overnight travel and expense
 
•
Gas/Gas card costs
 
•
Costs for all meetings, including but not limited Initial training meeting and POA Meetings. May include Alamo or other extended project team costs related to these meetings
 
•
Backfill training
 
•
Incentive compensation / contests plus all applicable taxes
 
•
Development of Training Materials in addition to those outlined in Implementation
 
•
If needed: if additional legal/medical review and/or Instructional Designer is required and approved by client, charged at $150/per hour (note: training fees include 2 rounds of legal/medical review with medical writer and/or Instructional Designer and the review committee).
 
•
Certified Professional Trainers: available at a rate of $2,000 per day plus reasonable travel and expense
 
 
Alamo shall obtain prior written approval from Client before incurring any pass-through costs.
 
 
III.
SALARY RECONCILIATION
 
Alamo Pharma Services shall perform quarterly salary reconciliations for the Pharmaceuticals Reps. The fixed monthly fee set forth in Section I above assumes an average annual salary for the Pharmaceuticals Reps as set forth in the following chart.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
Alamo Field Force Member
Assumed Average
Salary (Year One)
 
Per Full-Time Pharmaceuticals
Rep Territory
 
$ [***]

 
•
The assumed average salary for the Pharmaceuticals Reps set forth in the chart above shall increase by four percent (4%) on an annual basis following Steering Committee Approval. The Steering Committee will review and approve the salary increases. Such review shall occur within ten (10) business days from submission of request by either party.
 
 
In the event the actual average base salary in any given year, for all of the Pharmaceuticals Reps is less than the assumed average base salary (for the applicable annual period), Client shall receive a credit (reflected on the following months invoice) in an amount equal to the following:

[(Total # Pharmaceuticals Reps x Assumed Average Base Salary) - (Total # Pharmaceuticals Reps x Actual Average Base Salary)] x (100% + applicable employer portion of taxes expressed as percentage)
 
In the event the actual average base salary for all of the Pharmaceuticals Reps, in any given year, is greater than the assumed average base salary (for the annual period) as set forth above, the following months invoice from Alamo Pharma Services shall reflect an additional payment due from Client to Alamo Pharma Services in an amount equal to the following. This will be determined in the event that the Steering Committee approves higher salaries to bring on higher quality talent:
 
[(Total # Pharmaceuticals Reps x Actual Average Base Salary) - (Total # Pharmaceuticals Reps x Assumed Average Base Salary)] x (100% + applicable employer portion of taxes expressed as percentage)
 
 
 
 
IV.
INVOICES; BILLING TERMS
 
The Implementation /Recruiting / Training fees for the initial 20 territories will be billed as follows.
 
 
•
Implementation and recruiting and training fees will paid in 6 equal payments for first 6 invoices, see grid below for planning purposes:

 
20 Reps (17 to be newly
recruited)
2 DM’s
Estimated Total
Implementation Fee:
$ [***]   per rep
$ [***] per DM
$ [***]
$ [***]
$ [***]
Recruitment Fee:
$ [***] per rep
[***] x $ [***]
$ [***]
 
$ [***]
Training Material
Development:
 
$ [***]
   
$ [***]
Estimated Totals:
   
$ [***]
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.

Estimated Billing for Implementation/Recruitment/Initial Training Material
December 2013
$ [***]
January 2014
$[***]
February 2014
$[***]
March 2014
$[***]
April 2014
$[***]
May 2014
$[***]
 

Estimated Monthly Billing:
Month
Implementation Fee:
Monthly Fee:
$ [***] /rep
$ [***] /DM
Estimated Total:
       
December 2013
$ [***]
 
$ [***]
January 2014
$ [***]
$ [***]
$ [***]
February 2014
$ [***]
$ [***]
$ [***]
March 2014
$ [***]
$ [***]
$ [***]
April 2014
$ [***]
$ [***]
$ [***]
May 2014
$ [***]
$ [***]
$ [***]
June 2014
 
$ [***]
$ [***]
July 2014
 
$ [***]
$ [***]
August 2014
 
$ [***]
$ [***]
September 2014
 
$ [***]
$ [***]
October 2014
 
$ [***]
$ [***]
November 2014
 
$ [***]
$ [***]
December 2014
 
$ [***]
$ [***]
 

Post initial deployment of Fees shall be paid by Client to Alamo Pharma Services within thirty (30) days of the date of the invoice. Commencing in the month of each Deployment Date, Client will be billed monthly in advance the amount stated above as the Fixed Monthly Fee. Pass-through Costs will be billed to Client at actual cost as incurred by Alamo Pharma Services.
 
Invoices are due upon receipt. If not paid within thirty (30) days of date of invoice, there will be a finance charge of 1.5% monthly, applied to the outstanding balance due that is not in dispute. All invoices shall be accompanied by descriptions of the Services performed and expenses incurred in sufficient detail to allow an audit of amounts due. Alamo shall retain a back-up copy of all support documentation for a period of three (3) years.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
APPENDIX 1 SAMPLING OF PRODUCTS
 
General
 
CLIENTS shall cause the Alamo Pharma Services Reps to distribute samples of Products to Targets (and to non-Targets as permitted under the terms of this PA) as part of the detailing activity of the Alamo Pharma Services, under a sampling program (the “Sampling Program”) which complies in all respects with applicable Federal and State law and regulations, including but not limited to the Federal Prescription Drug Marketing Act, as amended (“PDMA”) and the Physician Payment Sunshine Act (the “Sunshine Act”) and regulations and guidelines promulgated thereunder. Any Sampling Program will be reviewed with and approved (in writing) by Client prior to implementation it being understood that any Sampling Program shall be Client’s program which shall be implemented by Alamo Pharma Services. The Parties agree that Product samples shall not be considered an item of value. All samples shall be provided by Client.
 
In connection with the foregoing, Client expressly authorizes Alamo Pharma Services to distribute the Product samples during the Term (or any Additional Term) of this Agreement.
 
If the Sampling Program provides for the shipment of samples to or distribution by Alamo Pharma Services to the CLIENTS targets (and thereafter to Targets), Alamo Pharma Services shall store the samples of the Products and distribute the samples to Targets (and to non-Targets as permitted under the terms of the Agreement) in compliance with all applicable legal requirements, including, without limitation, the PDMA and the Sunshine Act. If the Sampling Program to which this Exhibit is attached provides for the distribution of samples by Client directly to the Alamo Pharma Services Reps, Client shall be responsible for storage and distribution in accordance with applicable legal requirements, including, without limitation, the PDMA and the Sunshine Act. Client shall nonetheless retain all risk of loss with respect to samples of the Products. Furthermore, Client shall at all times maintain its own insurance with respect to loss, damage or destruction of the Products.
 
Responsibility for Sample Distribution and Storage
 
The Clients shall be responsible for any necessary storage of samples in the aggregate and for distribution of samples. The CLIENTS shall be accountable for samples received by Alamo Pharma Service Reps (including any storage of samples by individual Alamo Pharma Services Reps).

State License Number for Targets
 
If requested in writing by the Clients, a list of Targets utilized by the Alamo Pharma Services Reps shall be validated by the CLIENTS against a current list of state license numbers. The fees for such service are set forth in Section III of Exhibit B. All additions, changes and off- list potential Targets shall be validated in advance by the CLIENTS.
 
Sample Accountability Records
 
Alamo Pharma Services shall utilize a security and audit program that includes allowance for all of: random, for cause and periodic physical inventories of samples delivered to the Alamo Pharma Services reps consistent with the PDMA and applicable regulations of the Food and Drug Administration (“FDA”). In the course of utilizing that program Alamo Pharma Services will generate Inventory Records, Reconciliation Reports and Summary Report as required by the regulations of the FDA.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
Written Accountability Policies
 
Alamo Pharma Services will prepare written policies, provide instruction and testing concerning those policies and (with the cooperation of the Clients) gather all required information concerning Sample Accountability issues to assure that Alamo Pharma Services is in compliance with the requirements of the regulations of the FDA covering the sampling services (if any) provided by Alamo Pharma Services. Those written policies and procedures will address: (i) the inventory process, (ii) an inventory schedule, (iii) the audit standards for detecting falsified and incomplete records, (iv) what is a significant loss and how it is to be identified, (v) responsibility for notifying the FDA, (vi) system for monitoring samples to identify the loss or theft of samples and (vii) the standards for storage of samples. Those written policies and procedures shall be provided to and accepted in writing by the Clients. In addition, Clients shall prepare written policies and procedures covering shipping of samples by Clients and return of samples, as applicable. Clients shall provide Alamo Pharma Services with a written copy of Client’s written policies and procedures.
 
Audit Services
 
Alamo Pharma Services will develop audit procedures, random selection audits, operational guidelines, proposed timelines and checklists to allow testing and demonstration of PDMA compliance. These procedures will include random and for-cause audit criteria, on-site inventory, inspection of sample storage locations, interviews of Alamo Pharma Services Reps and reconciliation services and reports. The on-site inventory of the samples in the possession of a Alamo Pharma Services Rep and related interview of that Alamo Pharma Services Rep (with accompanying reconciliation services and report) shall constitute a “physical audit.” A physical audit, as requested by the Client, shall be conducted with respect to Pharmaceuticals Reps with appropriate subsequent reconciliation of samples provided to that Pharmaceuticals Reps. In addition to any other physical audits, performed by either the Clients or Alamo Pharma Services, required by the PDMA and/or regulations thereunder and/or by the applicable written policies and procedures for the sample accountability program, a physical audit shall be conducted on each Alamo Pharma Services Rep upon termination of employment either by Client or Alamo Pharma Services. Random signature audits will be performed by Alamo Pharma Services and the results reported to the Clients.
 
Shipment of Samples
 
If Client is shipping samples directly to the Alamo Pharma Services Reps, the Clients shall be responsible for those shipments, including using appropriate delivery verification system and confirmation documentation. Under any Sampling Program, the Clients shall provide Alamo Pharma Services with a written description of that delivery verification system and copies of the conformation documentation forms. The Clients shall provide Alamo Pharma Services with all PDMA-related information concerning shipped samples as required by FDA regulations, i.e., including lot numbers. This information may be delivered either electronically or on paper but in either case within 24 hours of the shipment of the samples. The Clients shall also provide all information reasonably necessary to allow Alamo Pharma Services to verify the receipt of shipped samples.
 
Alamo Pharma Services will ensure they receive a copy of all documents confirming shipments of samples to the Alamo Pharma Services Reps, whether by Alamo Pharma Services, a warehouse or the Clients. Alamo Pharma Services will, in all cases, reconcile the receipt of samples by each Alamo Pharma Services Rep with the samples shipped to that Alamo Pharma Services Rep, based upon the shipping records provided to it and acknowledged of delivery provided by the Alamo Pharma Services Rep. All discrepancies between the sample shipping records (whether by Alamo Pharma Services, warehouse or the Clients and the acknowledgment of delivery by the Alamo Pharma Services Reps shall be identified by Alamo Pharma Services and reported to the Client within five (5) days of discovery. All loss of samples or potential loss of samples shall be investigated by the Clients. To the extent either party uses a third party vendor to provide any shipping and/or delivery verification services, that party shall insure that the third party vendor is compliant with all applicable federal and state laws, including the PDMA and the regulations of the FDA.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
Returns
 
The Clients shall be responsible for confirming all returns of samples by Alamo Pharma Services or the Alamo Pharma Services Reps. The Clients will provide Alamo Pharma Services with written confirmation of sample returns promptly after receipt by the Clients of the returned sample. The Parties recognize that Alamo Pharma Services will reconcile sample data and account for samples based (in part) on the return confirmations provided by the Clients. The Clients shall not remove, destroy or otherwise impair the availability of the returned samples until either Alamo Pharma Services confirms the return of samples in the quantities reported by the Alamo Pharma Services Rep or, if Alamo Pharma Services has not begun such confirmation after the passage of thirty (30) days following notice to Alamo Pharma Services.

Access to Records
 
Alamo Pharma Services shall provide the Clients access in less than twenty-four (24) hours.

 
Notification of Client; of FDA
 
Upon Alamo Pharma Services’ discovery that any Product samples have been lost or stolen, Alamo Pharma Services shall, within twenty-four (24) hours, report such theft or loss to the Clients. Client will be responsible for determining whether a “theft” or a “significant loss” has occurred under the PDMA and the regulations of the FDA. Client shall also be responsible for determining whether there is “reason to believe” that a diversion of a sample or falsification of a sample record by an Alamo Pharma Services Rep has occurred. Client is responsible for reporting the theft or loss to the FDA.
 
Recalls
 
Alamo Pharma Services shall maintain such traceability records at the product code level on samples of the Products as may be necessary to permit a recall or field correction of the Product. The decision to conduct and the right to control a recall shall be solely Clients. Alamo Pharma Services shall cooperate fully with Client in connection with any recall efforts affecting the Product.
 
Accountability Training
 
The Parties recognize that a Sampling Program will require incremental training in sample accountability. Alamo Pharma Services, with the assistance of Client, will provide, as part of the training, all Alamo Pharma Services Reps with training which addresses sampling matters. Alamo Pharma Services will consult with Client to assure that the Alamo Pharma Services Reps will use detail bags and report forms which are acceptable to Client. Should Alamo Pharma Services and/or Client determine that follow-on training is necessary in the future, Client will be responsible for the reasonable costs associated with such follow-on training.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
 
APPENDIX II
 
$ [***]
 
 
 
 
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ATTACHMENT B
 
Co-Promotion Agreement
 
Mission Pharmacal Company’s (Mission) and DARA Biosciences, Inc.’s (DARA) will share the costs and expenses of a pharmaceutical sales force which will promote the Mission Products (as hereinafter defined) and the DARA Products (as hereinafter defined) to physicians whose primary area of practice is oncology or oncology support fields (the “Specialty”) in the Territory (as hereinafter defined) through the sales force reference in Attachment A (the “Alamo Sales Force”) consisting of Alamo employees and managed by Alamo Pharma Services, Inc. (“Alamo”) as the contract services provider utilized paid by both Mission and DARA to promote both the Mission Products and DARA Products to the Specialty.
 
Mission agrees with DARA that there is a lack of data concerning historical sales of Ferralet 90, Aquoral and Binosto to the Specialty. Therefore, the Parties are unable to agree in advance to a TRx generation number in the Specialty for the Mission Products. To accommodate this lack of data, the proposed structure has a guarantee payment component for the first year following execution of the Co-Promotion Agreement (the “Agreement’) pursuant to which Mission shall make certain monthly minimum payments to Alamo for promoting the Mission Products. Furthermore, in order to properly align incentives, the Agreement shall also contain a “risk-share component” once the market for the Mission Product in the Specialty is defined.
 
Therefore, the major elements of the proposed Agreement which is a mixed model of a guarantee payment and revenue sharing are the following:
 
 
1.
The Mission Products to be promoted to the Specialty of Oncology and Oncology Support by the Alamo Sales Force are Ferralet 90, Aquoral and Binosto (the “Mission Products”). Mission will book all sales of the Mission Products.
 
 
2.
The DARA Products to be promoted to the Specialty by the Alamo Sales Force are Soltamox, Gelclair and Bionect. DARA will be responsible for logistics regarding the sales of the DARA Products.
 
 
3.
Mission will make a monthly guaranteed payment of $ [***] during the first year of the Agreement (Annualized at $ [***] ). This will correlate to a minimum of [***] details per month for the Mission Products. There will be two evaluation periods during the first 15 months. The evaluations will be scheduled during month 12 and month 15. At the 12 month evaluation, the options will be for either company to terminate, mutually agree to move to the revenue sharing model, or continue for three more months under the current agreement. At month 15, the options will be for either company to terminate or mutually agree to move to the revenue sharing model. If at month 12 the decision is to continue for 3 more months, then Mission will continue to pay DARA the $ [***] monthly fee for months 13, 14, and 15.

 
4.
Mission Products will receive a minimum of [***] % of the value of the Incentive Compensation Program of the Alamo Sales Force for the achievement of the goals associated with the Mission Products for the first 12 months of the agreement and [***] % of the Incentive Compensation (IC Plan) for year 2 and beyond. Mission shall be provided the IC plan prior to publication.

 
5.
If the TRx for the Mission Products generated within the Specialty after being monetized and annualized meets or exceeds a TRx gross sales dollar trigger point, of $ [***] (the “Trigger Value”) or TRx positive trend data meets or exceeds amounts mutually agreed to by both parties, then the Agreement would be amended to provide for a revenue sharing model. For example, if the monetized and annualized TRx generated exceeds the Trigger Value or TRx positive trend data meets or exceeds amounts mutually agreed to by both parties, then the Agreement would institute revenue sharing starting the next month following the Trigger Date as calculated in paragraph 6 below.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.

 
6.
When the Trigger Value is achieved the following revenue sharing model would “kick in.” The proposed percentage splits for the Mission Products gross margin for every year of the Agreement are the following:
 
a.
Starting in Year 2: the split of the gross margin dollars are [***] % DARA, [***] % Mission
 
b.
Starting in Year 3: the split of the gross margin dollars are [***] % DARA, [***] % Mission
 
c.
Starting in Year 4: the split of the gross margin dollars are [***] % DARA, [***] % Mission
 
d.
Starting in Year 5: the split of the gross margin dollars are [***] % DARA. [***] % Mission

 
7.
Each Party shall have the option to terminate the Agreement at the end of either months 12 and 15, and annually thereafter.

 
8.
DARA will pay an agreed upon sum for the utilization of the Alamo Sales Force for the promotion of Mission Products.

 
9.
Mission would mutually agree upon a number of specific pieces of sales literature and samples (a “Cap”) to be used by the Alamo Sales Force for each of the Mission Products during the term of the Agreement at no cost to DARA. Any amount of sales literature or samples above the cap shall be provided at Mission’s cost to Alamo Sales Force at DARA’s expense. Utilization beyond the Cap would be at the sole decision and cost to DARA and Mission would charge DARA at a pass-through cost for pieces beyond the Cap.

The agreed upon number of specific pieces of sales literature and samples shall be as follows:

 
1. 
Ferrelet 90 sales literature [number of pieces to be determined]
 
2. 
Ferrelet 90 samples [number of samples to be determined]
 
3. 
Aquoral sales literature [number of pieces to be determined]
 
4. 
Aquoral samples [number of samples to be determined]
 
5. 
Binosto sales literature [number of pieces to be determined]
 
6.
Binosto samples [number of samples to be determined]

 
10.
Mission shall continue to promote the Mission Products through its own sales force.

 
11.
Mission shall provide DARA with quarterly sales reports substantiating all TRX’s of the Mission Products within the Specialty. DARA shall provide to Mission a quarterly report containing the details of Mission Products.

 
12.
Mission shall have the sole responsibility for the sale, manufacturing, shipment, distribution, warehousing, billing, order processing, collection of receivables, payment of rebates and other similar charges and filing of all necessary reports for the Mission Products and for booking Mission Product sales.

 
13.
Mission shall have sole responsibility for and shall provide all medical and pharmaceovigilence support for the Mission Products.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
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ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.

 
14.
Mission shall have sole responsibility for all regulatory matters, including Product recalls, concerning the Mission Products. Should there be any finding of liability or regulatory fines related to the sale and promotion of Ferralet 90, Mission agrees to hold DARA harmless and indemnify DARA for any actual damages, including attorney’s fees. DARA shall be a named insured on Mission’s general liability and commercial insurance programs. Mission reserves the right to manage any litigation or regulatory correspondence with the FDA or any other governmental or regulatory authority regarding Ferralet 90.

 
15.
Territory shall mean the United States of America and it possessions and territories specifically related to the Specialty.

 
16.
Mission will grant Alamo Sales Force the exclusive right to promote the Mission Products to the Specialty within the Territory during the Term of the Agreement.

 
17.
Alamo Sales Force will promote the Mission Product in accordance with industry standards and shall provide samples and promotional literature to physicians and other health care practitioners within the Specialty as customary and appropriate.

 
18.
DARA will be responsible for creating any potential Specialty specific supplemental marketing and sales materials for the Mission Products. Such materials will be pre-approved by Mission for use in the marketplace.

 
19.
DARA and Mission shall select two individuals from each company to participate in a quarterly meeting (“Joint Steering Committee”), by phone or in person, to make joint decisions required under the Agreement.
 
 
 
 
CONFIDENTIAL MATERIAL OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS ([***]) DENOTE SUCH OMISSIONS.
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THIS OMITTED INFORMATION.
 
AGREED TO:
 
 
ALAMO PHARMA SERVICES, INC.
DARA BIOSCIENCES, INC.
By: /s/ Pete Marchesini
By: /s/ David J. Drutz
Pete Marchesini
David J. Drutz
Title: Chief Operations Officer
Title: CEO and CMO
   
   
   
MISSION PHARMACAL COMPANY
 
By: /s/ Thomas J. Dooley
 
Name: Thomas J. Dooley
 
Title: Chief Financial Officer
 
 
 
 
Exhibit 4.25
 
 
EXECUTIVE EMPLOYMENT AGREEMENT  THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), is effective as of January 1, 2016 (the "Effective Date"), by and between Midatech Pharma US, Inc., a Delaware corporation and wholly owned subsidiary of parent Midatech Pharma PLC, a public limited company organized under the laws of England and Wales (the "Company"), and David Benharris (the "Executive").   WITNES SETH:   WHEREAS, the Company wishes to employ the Executive, and the Executive desires to accept employment with the Company, upon the terms and conditions of this Agreement.  NOW, THEREFORE, in consideration of the foregoing, of the mutual promises herein, and of other good and valuable consideration, including the employment of the Executive by the Company and the compensation to be received by the Executive from the Company from time to time, and specifically the compensation to be received by the Executive pursuant to Section 4 hereof, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows:  1.  Employment.   The Company hereby employs the Executive and the Executive hereby accepts employment as President of the Company upon the terms and conditions of this Agreement.  2.  Duties. The Executive shall faithfully perform all duties of the Company related to the position or positions held by the Executive, including but not limited to all duties set forth in this Agreement and/or in the Bylaws of the Company related to the position or positions held by the Executive and all additional duties that are prescribed from time to time by the Board of Directors of the Company (the "Board") or the Chief Executive Officer of the Company.  The Executive shall report to the Chief Executive Officer of Midatech Pharma plc. The Executive shall devote the Executive's full time and attention to the performance of the Executive's duties and responsibilities on behalf of the Company and in furtherance of its best interests; provided, however, that the Executive, subject to the Executive's obligations hereunder, shall also be permitted to make personal investments, perform reasonable volunteer services and, with the prior consent of the Company, serve on outside boards of directors for non-profit corporations. The Executive shall comply with all Company policies, standards, rules and regulations (the "Company Policies") and all applicable government laws, rules and regulations that are now or hereafter in effect.  The Executive acknowledges receipt of copies of all written Company Policies that are in effect as of the date of this Agreement.  3.  Term.   The Executive's employment by the Company shall commence on the Effective Date and shall be at-will, meaning either the Company or the Executive can terminate the Agreement at any time, for any or no reason, in accordance with provisions of Section 6 of the Agreement (the "Term").   4.  Place of Employment.   The Executive's regular workplace will not be the
 
 
 
 
 
 
Company's offices in Raleigh, NC and instead will be outside of the state of North Carolina; provided, however, Executive will be present at such offices as reasonably required by the Company. The location of the Company's offices may change at the discretion of the Company. For so long as the Executive's residence is more than fifty (50) miles from the Company's offices, the Company will pay the Executive's reasonable travel expenses to and from the Company's offices and reasonable lodging expenses while the Executive is at the Company's offices. The Executive's duties will involve travel, and upon request, Executive shall work at such place or places other than the Company's offices or the Executive's normal place of work, as may be reasonably specified by the Company.  The Company shall pay or reimburse reasonable travel, lodging, meal and related incidental costs of the Executive when the Executive is requested to travel or work at any location outside of the Company's offices or the Executive's normal place of work, consistent with the Company's travel policies in effect from time to time.  5.  Compensation, Benefits and Vacation. As compensation for the services rendered by the Executive under this Agreement, the Executive shall be entitled to receive the following (all payments are subject to applicable withholdings):  (a)  Base Salary. The Executive shall receive an annual salary of Two Hundred Eighty Thousand Dollars ($280,000.00) per year payable in accordance with the then-current payroll schedule of the Company (the "Base Salary").  The Executive's Base Salary may be increased from time to time by the Board.  (b)  Bonuses.   The Executive shall be eligible, at the Board's discretion, to participate in an annual bonus plan (the "Annual Bonus"). The Executive's target Annual Bonus shall be Fifty percent (50%) of the Executive's then-current annual Base Salary, apportioned between achievement of personal objectives and Company objectives as the Board may set from year-to-year.  The amount awarded, if any, shall be paid following completion of the Company's fiscal year and in any event no later than March 15th of the year immediately following the year in which the Company's fiscal year terminates. The Annual Bonus shall be less applicable taxes and withholding.  (c)  Benefits. The Executive shall be entitled to receive those benefits provided from time to time to other executive employees of the Company who reside in the country in which the Executive is domiciled, in accordance with the terms and conditions of the applicable plan documents, provided that the Executive meets the eligibility requirements thereof.   All such benefits are subject to amendment or termination by the Company without the consent of the Executive or any other employee of the Company. As of the Effective Date, the Executive shall be entitled to participate in the following plans and arrangements:   (i)  Health Insurance.   The Executive shall be eligible to receive  benefits under the health insurance plan currently made available by the Company.   (ii) 401 (k) Plan.   The Executive shall be eligible to participate in the Company's 401(k) Plan, if any, according to its terms. The foregoing notwithstanding, the Company shall make an annual contribution to the Executive's 401(k) plan (or such other similar retirement plan as the Executive may direct from time to time), in the amount of Twenty Eight
 
 
 
 
 
 
Thousand Dollars ($28,000.00), to be paid by March 15th of each year.   (iii)  Vacation.   The Executive shall be entitled to  20 days of paid  vacation each calendar year subject to the terms of the Company's vacation policy.   (iv)  Business Expenses.   The Company shall pay, or reimburse the  Executive for, all reasonable expenses incurred by the Executive directly related to conduct of the business of the Company in accordance with the Company's policies for the reimbursement or advancement of business expenses that are now or hereafter in effect.   (d)  Perquisites.  In addition to the Base Salary and Annual Bonus described hereinabove, the Executive shall be provided a company vehicle which shall be leased by the Company or one of the Company's vendors for the Executive's use. The vehicle shall be of a size and class as may be reasonably approved by the Company.  (e)  Equity Grant.  The Company may grant to the Executive such options or restricted stock units as may be decided by the Board of Directors or by the appropriate subcommittee thereof.  6.  Termination.  This Agreement and the Executive's employment by the Company shall be terminated by the first to occur of any of the following events:  (a)  Termination upon Notice. Without altering the at-will nature of Executive's employment, Executive and the Company agree to provide at least thirty (30) days advance written notice of termination of the Agreement; provided, however, that the Company reserves the right to terminate Executive's employment at any time during the notice period or to terminate the Executive's employment immediately upon notice, in which case the Company shall pay the Executive's Base Salary for either the full notice period or any remainder thereof, as appropriate. In the event the Company terminates the Executive pursuant to the terms hereof, the Executive shall be entitled to Severance under paragraph (d)(ii) below.   (b)  Termination by Executive for Good Reason.   The Executive may terminate this Agreement and Executive's employment by the Company for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the existence, without Executive's consent, of any of the following events: (A) the Executive's duties and responsibilities or salary are substantially reduced  or diminished; (B) the Company materially breaches its obligations under this Agreement; or (C) the Executive's place of employment is relocated by more than 50 miles and the Executive resides within 50 miles of the immediately preceding place of employment and such relocation is done without the consent of the Executive. In addition to any requirements set forth above, in order for any of the above events to constitute Good Reason, the Executive must  (X) inform the Company of the existence of the event within 90 days of the initial existence of the event, after which date the Company shall have no less than 30 days to cure the event which otherwise would constitute Good Reason hereunder and (Y) the Executive must terminate employment with the Company for such "Good Reason" no later than two years after the initial existence of the event which prompted the Executive's termination.
 
 
 
 
 
 
(c)  Termination by the Company. The Company shall terminate this Agreement and the Executive's employment hereunder immediately upon one of the following occurances:   (i)  Death: upon the death of the Executive, in which case this  Agreement shall terminate immediately, provided that such termination shall not prejudice any benefits payable to the Executive's spouse or beneficiaries which are fully vested as of the date of death;  (ii)  Permanent Disability: if the Executive is Permanently Disabled,"  in which case this Agreement shall terminate immediately, provided that, such termination shall not prejudice any benefits payable to the Executive, the Executive's spouse or beneficiaries which are fully vested as of the date of the termination of this Agreement. For purposes of this Agreement, the Executive shall be considered "Permanently Disabled" when a qualified medical doctor mutually acceptable to the Company and the Executive or the Executive's personal representative shall have certified in writing that: (A) the Executive is unable, because of a medically determinable physical or mental disability, to perform substantially all of the Executive's duties, with or without a reasonable accommodation, for more than 180 calendar days measured from the last full day of work; or (B) by reason of mental or physical disability, it is unlikely that the Executive will be able, within 180 calendar days, to resume substantially all business duties and responsibilities in which the Executive was previously engaged and otherwise discharge the Executive's duties under this Agreement;   (iii)  Liquidation, Dissolution or Discontinuance of Company: upon the  liquidation, dissolution or discontinuance of business by the Company in any manner or the filing of any petition by or against the Company under any federal or state bankruptcy or insolvency laws, which petition shall not be dismissed within 60 days after filing; provided that, such termination shall not prejudice the Executive's rights as a stockholder or a creditor of the Company; or   (iv)  for Cause (as defined herein): "Cause" for the purposes of this  Agreement shall mean:   (A)  Any material breach of the terms of this Agreement by the  Executive, or the failure of the Executive to diligently and properly perform the Executive's duties for the Company or the Executive's failure to achieve the objectives specified by the Board, which breach or failure is not cured within 30 days after written notice thereof;   (B)  The Executive's misappropriation or unauthorized use of the  Company's  tangible  or  intangible  property,  or  any  other  similar  agreement  regarding confidentiality, intellectual property rights, non-competition or non-solicitation;   (C)  Any material failure to comply with the Company Policies or  any other policies and/or directives of the Board, which failure is not cured within 30 days after written notice thereof; provided, however, in the case of failure to comply with Company Policies related to harassment, unlawful discrimination, retaliation or workplace violence a 30 day cure period and written notice thereof is not required and termination may occur immediately upon the provision of notice;
 
 
 
 
 
  (D)  Any dishonest or illegal action (including, without limitation,  embezzlement) or any other action whether or not dishonest or illegal by the Executive which is materially detrimental to the interest and well-being of the Company, including, without limitation, harm to its reputation;   (E)  The Executive's failure to fully disclose any material conflict  of interest that the Executive may have with the Company in a transaction between the Company and any third party which is materially detrimental to the interest and well-being of the Company; or   (F)  Any adverse action or omission by the Executive which  would be required to be disclosed pursuant to public securities laws or which would limit the ability of the Company or any entity affiliated with the Company to sell securities under any Federal or state law or which would disqualify the Company or any affiliated entity from any exemption otherwise available to it.   (d) Obligations of the Company upon Termination.  (i)  Upon the termination of this Agreement (A) by the Executive upon  notice pursuant to paragraph 6(a) or (B) by the Company pursuant to paragraph 6(c)(i)-(iv), the Company shall have no further obligations other than to pay the Executive unpaid Base Salary earned by the Executive through the date of termination.   (ii)  Upon termination of this Agreement:  (A) by the Executive for Good  Reason pursuant to paragraph 6(b), or (B) by the Company upon notice pursuant to paragraph 6(a), provided that the Executive first executes and does not revoke a release and settlement agreement in a form acceptable to the Company within the time period specified (the "Release"), the Company shall provide the Executive with the following benefits (collectively, the "Severance"): (1) the Company shall pay the Executive the amount equal to six (6) months of Executive's then-current Base Salary (less all applicable withholdings and deductions), which shall be paid in equal installments in accordance with the current payroll schedule of the Company, commencing on the first regularly scheduled payroll date after the Release becomes effective; and (2) provided that the Executive properly elects continued health insurance coverage under the Company sponsored plan and provided further that such benefits continue to be offered, the Company shall pay for or reimburse the Executive for such continued health insurance coverage at the same average level and on the same terms and conditions which applied immediately prior to the date of the Executive's termination for the shorter of (a) six (6) months from the date of termination or (b) until the Executive obtains reasonably comparable coverage, provided, however, that notwithstanding the foregoing, if the Company's making such payments under this subsection (2) would violate the nondiscrimination rules applicable to non-grandfathered plans under the Affordable Care Act (the "ACA"), or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder, the parties agree to reform this section in a manner as is necessary to comply with the ACA.   (e) Precedence  of Surviving Term. The provisions  of Section 6(d)(ii)
 
 
 
 
 
 
notwithstanding, the Company acknowledges the existence of the Executive's Employment Agreement dated January 19, 2015, wherein Executive is provided a term of employment of three  (3) years.  As such, upon termination of this Agreement: (A) by the Executive for Good Reason pursuant to paragraph 6(b), or (B) by the Company upon notice pursuant to paragraph 6(a), and where such termination occurs prior to January 19, 2018, the Company shall pay to the Executive the greater of (i) one (1) times the Executive's then-current annual Base Salary, or (ii) the aggregate amount of the Executive's then-current annual Base Salary payments that would have otherwise been payable over the remaining balance of the term ending on January 19, 2018; provided however, that if such termination occurs on or before December 3, 2016, in addition to the payments set forth in Section 6(e)(i) and 6(e)(ii) hereinabove (whichever is greater), the Executive shall also be paid an amount equal to the Executive's then-current target Annual Bonus. In addition to the foregoing, and only if termination of the Executive occurs pursuant to this Section 6(e), the Company shall pay for or reimburse the Executive for such continued health insurance coverage at the same average level and on the same terms and conditions which applied immediately prior to the date of the Executive's termination for the shorter of (a) the period of time from the date of termination and ceasing on January 19, 2018, or (b) until the Executive obtains reasonably comparable coverage, provided, however, that notwithstanding the foregoing, if the Company's making such payments under this subsection would violate the nondiscrimination rules applicable to non-grandfathered plans under the Affordable Care Act (the "ACA"), or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder, the parties agree to reform this section in a manner as is necessary to comply with the ACA. For purposes of clarity only, this Section 6(e) shall become null and void if not triggered or otherwise duly exercised before January 19, 2018.  (f)  Resignation as Officer and Director. Upon termination of this Agreement and the Executive's employment hereunder for any reason by either party, the Executive shall be  deemed to have resigned from all offices and positions the Executive may hold with the Company at such time including without limitation Board membership and/or positions as an officer of the Company.   7. Confidentiality. (a)  The Executive acknowledges that as a result of his employment with the Company he will receive access to Confidential Information of the Company. "Confidential Information" includes, but is not limited to, trade secrets, intellectual property, confidential or proprietary information, and all other knowledge, information, documents or materials, owned, licensed, developed or possessed by the Company which pertains, in any manner, to the Company's actual or anticipated Business, operations, financial information, business methods, pricing strategies and techniques, existing and future business or strategic plans, research and development projects, inventions, discoveries, ideas, clients, agreements, employees, and sales and marketing information  and  activities,  and  shall  include,  without limitation,  software, documentation, drawings, engineering, memoranda, ideas, designs, inventions, processes, sales, client lists, business leads, notes, concepts, ideas and designs, or any other non-public information that a competitor of the Company could use to the competitive disadvantage of the Company and all other documentation, manuals, letters, pamphlets, drafts, memoranda, notes and other documents, writings or tangible things of any kind, whether in tangible or intangible form.
 
 
 
 
 
 
(b)  The Executive agrees that he will maintain the confidentiality of the Confidential Information at all times during and after the Executive's employment with the Company and will not, at any time, directly or indirectly, use any Confidential Information for his own benefit or for the benefit of any other person, reveal or disclose any Confidential Information to any person other than authorized representatives of the Company, except in the performance of the Executive's duties in the furtherance of the business of the Company or with the prior written consent of an authorized officer of the Company. The covenants in this Section VII will not apply to information that (1) is or becomes available to the general public through no breach of this Agreement by the Executive or (2) the Executive is required to disclose by applicable law or court order; provided, however, that the Executive will notify the Company in writing of such required disclosure as much in advance as practicable in the circumstances and cooperate with the Company to limit the scope of such disclosure.  (c)  Upon request during employment, and immediately upon the termination of Executive's employment with the Company for any reason, Executive will immediately turn over and return to the Company all Confidential Information in any form (including all copies and reproductions thereof) and all other property whatsoever of the Company in or under his possession or control.  (d)  The Executive hereby confirms and agrees that the Executive will not disclose or use any information received by the Company from third parties, except as required in connection with the work for the Company. The Executive also agrees not to improperly use or disclose any confidential information or trade secrets of any third party or former employer to whom the Executive owes an obligation of confidentiality. By execution of this Agreement, the Executive confirms that the performance under the terms of the Agreement does not breach the terms of any agreement by which the Executive is legally bound, and the Executive agrees not to become a party to any such agreement during the Term.  8.  Non-Competition and Non-Solicitation.  During his employment, the Executive shall not participate in or otherwise be directly or indirectly involved or engaged in any business activity, other than that of the Company, unless specifically approved by the Board. In addition, during his employment, the Executive shall not engage in any activity that is competitive with the Business of the Company. Executive further agrees that, except as otherwise approved in writing by the Company, during the Restricted Period, he will not, directly or indirectly:  (a)  engage in the Business in the Territory or market, sell or provide Products and Services in the Territory;  (b)  hold a position based in or with responsibility for all or part of the Territory, with any person engaging in the Business, whether as employee, consultant, or otherwise, in which Executive: (1) will have duties, or will perform or be expected to perform services for such person, that is or are the same as or substantially similar to the position held by Executive or those duties or services actually performed by Executive for the Company at the time of the termination of Executive's employment with the Company, or (2) in which Executive will use or disclose or is reasonably expected to use or disclose any Confidential Information of the Company for the
 
 
 
 
 
 
purpose of providing, or attempting to provide, such person with a competitive advantage with respect to the Business;  (c)  solicit any Customer for purposes of marketing, selling or providing Products and Services to such Customer;  (d)  accept as a customer any Customer for purposes of marketing, selling or providing Products and Services to such Customer;  (e)  induce, encourage, or attempt to induce or encourage any Customer to curtail or cancel their business with Company; or  (f)  induce, encourage, or attempt to induce or encourage any Company Employee to terminate his employment with the Company; provided, however, that the foregoing will not restrict the ability of the Executive to purchase or otherwise acquire up to one percent (1%) of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities have been registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934.   (g)  As used in this Agreement, the following terms have the meanings given to such terms below:   (i)  "Business" means the business(es) in which the Company was  engaged at the time of the termination of the Executive's employment with the Company for any reason, including but not limited to the development and sale of oncology support and therapeutic compounds that directly compete in the same market segment(s) as those of the Company.   (ii)  "Customer" means any person or entity who is or was a customer or  client of the Company at the time of the termination of the Executive's employment with the Company for any reason or with whom the Executive had dealings or from whom the Executive received Confidential Information, or provided Confidential Information to, in the course of his employment with the Company.   (iii)  "Company Employee" means any person who is or was an  employee of the Company at the time of, or during the six (6) month period prior to, the termination of the Executive's employment with the Company for any reason.   (iv)  "Products  and Services" means the products and/or services  offered by the Company at the time of the termination of the Executive's employment with the Company for any reason.   (v)  "Restricted Period" means the period commencing on the date of  termination of the Executive's employment with the Company: (i) and ending on the twelve (12) month anniversary of such date if such termination is by the Company for Cause or by the Executive for any reason other than for Good Reason, or (ii) ending on the date which is the later of: (a) January 19, 2018, or (b) six (6) months from the date of termination  if Executive's
 
 
 
 
 
 
employment is terminated by the Company without Cause or by Executive with Good Reason; provided, however, the Restricted Period shall be tolled and shall not run during any time Executive is in violation of Section 8 of this Agreement to the extent the existence of such violation is mutually agreed by the parties or, in the absence of such mutual agreement, determined by court of competent jurisdiction or other third party, such as an arbitrator, as mutually agreed by the parties, it being the intent of the parties that the Restricted Period shall be extended for any period of time in which Executive is in violation of Section 8 of this Agreement.   (vi)  "Territory" means:  (i) the State of North Carolina, (ii) any other  State in which the Company does business at the time of the termination of the Executive's employment with the Company for any reason; (iii) the United States of America; and (iv) any other country in which the Company does business at the time of the termination of the Executive's employment with the Company for any reason.  9.  Work Product.  The Executive acknowledges and agrees that all work that the Executive performs for, or on behalf of, the Company and its clients, and all inventions or other work product that the Executive produces or develops in connection with his services for the Company ("Work Product"), shall be the property of the Company, and all copyrightable Work Product prepared by the Executive within the scope of the Executive's employment with the Company are "works made for hire" under the U.S. Copyright Act and shall be exclusively owned by the Company.  The Executive hereby assigns, transfers and conveys to the Company, without additional consideration, all of his other rights, title and interest in and to all Work Product made or conceived, in whole or in part, by the Executive within the scope of the Executive's employment by the Company, or that relates directly to, or involves the use of, Confidential Information.  The Company's ownership, including its copyright ownership, shall continue in full force and effect in perpetuity and shall not be impaired or impacted by the termination or expiration of this Agreement for any reason. The Executive will, without additional compensation, execute all assignments, oaths, declarations and other documents requested by the Company to effect and further evidence the foregoing assignment, transfer and conveyance, and agrees to provide all reasonable assistance to the Company (at the Company's expense) to provide all information, documentation and assistance to the Company in perfecting, enforcing, defending or protecting any or all of the Company's rights in all Work Product.   The Company is hereby irrevocably appointed the Executive's attorney-in-fact (which agency shall be deemed coupled with an interest) with full right, power and authority to execute, verify, acknowledge and deliver the same in the Executive's name and on the Executive's behalf.   10.  Representations and Warranties.  The Executive represents and warrants to the Company that the Executive's performance of this Agreement and as an employee of the Company does not and will not breach any noncompetition agreement or any agreement to keep in confidence proprietary information acquired by the Executive in confidence or in trust prior to the Executive's employment by the Company.  The Executive represents and warrants to the Company that the Executive has not entered into, and agrees not to enter into, any agreement that conflicts with or violates this Agreement.   The Executive represents and warrants to the Company that the Executive has not brought and shall not bring with the Executive to the Company, or use in the performance of the Executive's responsibilities for the Company, any
 
 
 
 
 
 
materials or documents of a former employer which are not generally available to the public or which did not belong to the Executive prior to the Executive's employment with the Company, unless the Executive has obtained written authorization from the former employer or other owner for their possession and use and provided the Company with a copy thereof  11.  Indemnification by the Executive.   The Executive shall indemnify and hold harmless the Company, its directors, officers, stockholders, agents, and employees against all claims, costs, expenses, liabilities, and lost profits, including amounts paid in settlement, incurred by any of them as a result of the material breach by the Executive of any provision of this Agreement.  12.  Notices.  All notices, requests, consents, approvals, and other communications to, upon, and between the parties shall be in writing and shall be deemed to have been given, delivered, made, and received when: (a) personally delivered; (b) deposited for next day delivery by Federal Express, or other similar overnight courier services; (c) transmitted via telefacsimile or other similar device, as follows:   If to the Company:   Midatech Pharma PLC  65 Innovation Drive Milton Park  Abingdon  Oxfordshire, OX14 4RQ United Kingdom  Facsimile:  Attention: Chief Executive Officer   If to the Executive:  David Benharris  324 Spring Street  Wrentham, MA 02093  13.  Effect. This Agreement shall be binding on and inure to the respective benefit of the Company and its successors and assigns and the Executive and the Executive's personal representatives.  14.  Entire Agreement.  This Agreement constitutes the entire agreement between the parties with respect to the matters set forth herein and supersedes all prior agreements and understandings between the parties with respect to the same.  15.  Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision.    16. Amendment and Waiver. No provision of this Agreement, including the provisions
 
 
 
 
 
 
of this Section, may be amended, modified, deleted, or waived in any manner except by a written agreement executed by the parties.  17.  Section  409A Matters.  This Agreement is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended and the Treasury Regulations and other applicable guidance thereunder ("Section 409A"). To the extent that there is any ambiguity as to whether this Agreement (or any of its provisions) contravenes one or more requirements of Section 409A, such provision shall be interpreted and applied in a matter that does not result in a Section 409A violation. The Company makes no representation that this Agreement will be exempt from or compliant with Section 409A and makes no affirmative undertaking to preclude Section 409A from applying. Notwithstanding any provision of this Agreement to the contrary, in the event the Employee is a "specified employee" (as defined in Section 409A) on the termination date, any payment or benefit hereunder is determined to constitute nonqualified deferred compensation subject to Section 409A, then to the extent necessary to comply with Section 409A, such payment or benefit shall not be made, provided or commenced until six months after the Executive's termination of employment. Lump sum payments will be made, without interest, as soon as administratively practicable following the six-month delay. Any installments otherwise due during the six-month delay will be paid in a lump sum, without interest, as soon as administratively practicable following the six-month delay, and the remaining installments will be paid in accordance with the original schedule. For purposes of Section 409A, the right to a series of installment payments shall be treated as a right to a series of separate payments. Each separate payment in the series of separate payments shall be analyzed separately for purposes of determining whether such payment is subject to, or exempt from compliance with, the requirements of Section 409A.  18.  Governing Law. This Agreement will be governed by and construed according to the laws of the State of Delaware as such laws are applied to agreements entered into and to be performed entirely within North Carolina between North Carolina residents.  19.  Consent to Jurisdiction and Venue. Each of the parties agrees that any suit, action, or proceeding arising out of this Agreement may be instituted against it in the state or federal courts located in the county and state wherein the Company's US headquarters are located at the time of institution of the proceeding. Each of the parties hereby waives any objection that it may have to the venue of any such suit, action, or proceeding, and each of the parties hereby irrevocably consents to the personal jurisdiction of any such court in any such suit, action, or proceeding.  20.  Counterparts. This Agreement may be executed in more than one counterpart, each of which shall be deemed an original, and all of which shall be deemed a single agreement.  21.  Headings.  The headings herein are for convenience only and shall not affect the interpretation of this Agreement.   [The remainder of this page is intentionally left blank.]
 
 
 
 
 
 
 
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the day and year first above written.    COMPANY:   MIDATECH PHARMA US, INC.    By: Printed Name: James Phillips, MD JP  Title: Director     EXECUTIVE:   David Benharris
 
 
 
Exhibit 4.30
 
 
 
 








MIDATECH LIMITED
 
AND
 
CRAIG COOK
 
 
 
 

 
 
 
 
CONTRACT OF EMPLOYMENT
 
 
 
 
 
 
 
 
 
 
CONTRACT OF EMPLOYMENT
 
THIS CONTRACT is made on the 1st day of September 2014 between:
 
(1)
MIDATECH LIMITED whose registered office is at Milton Park Innovation Centre, 99 Park Drive, Milton Park, Abingdon, Oxfordshire OX14 4RY (“the Company” ); and
 
(2)
Craig Cook (“ you” ).
 
1.
START DATE
 
1.1
Your permanent employment with the Company will start on1st July 2014 (the Employment ).
 
1.2
Your period of continuous employment with the Company began on 4 th February 2014.
 
2.
PROBATIONARY PERIOD
 
2.1
You have successfully completed your probationary period.
 
3.
JOB TITLE/DUTIES
 
3.1
You are employed as Finance Director.  A non-exhaustive description of your duties is set out in Schedule 2.
 
3.2
You will report to Jim Phillips, CEO, or such other person as is nominated from time to time to be your manager (your Manager ).  You will at all times act in the best interests of the Company and Group Company.
 
3.3
Your duties may be amended by the Company from time to time or you may be required to undertake different and/or additional duties in order to meet the Company’s business needs.
 
3.4
The Company reserves the right to appoint other persons to act jointly with you.
 
4.
PLACE OF WORK
 
4.1
Your normal place of work will be.Milton Park Innovation Centre, 99 Park Drive, Milton Park, Abingdon, OX14 4RY.  In the event the Company decides to relocate its activities within the Oxfordshire area, that new location will become your normal place of work.
 
4.2
The Company may from time to time require you to travel to and work at other places within the United Kingdom and overseas.
 
 
1
 
 
5.
HOURS OF WORK
 
5.1
Your normal hours of work are from 9.00 am to 5.00 pm Monday to Friday with one hour for lunch.  The nature of your duties is such that you may also be required to work different and/or additional hours to meet the Company’s business needs.
 
5.2
You will not be paid for overtime.  You have no right to time off in lieu of additional hours worked.  However, the Company may from time to time at its sole and absolute discretion grant time off in lieu but which shall not give rise to any right, expectation or entitlement to any future or further time off in lieu.
 
5.3
You agree that the limit on working time in Regulation 4(1) of the Working Time Regulations 1998 will not apply to your Employment.  You may give three months’ written notice to the Company if you wish to revoke your agreement to this opt-out.
 
6.
REMUNERATION AND BENEFITS
 
6.1
Your base salary will be £125,000 per annum, pro-rated, for the duration of the  contract.  You will be paid monthly in arrears by credit transfer to your bank account.  Your base salary is reviewable annually.
 
6.2
You will be eligible to participate in the Company’s discretionary bonus scheme.   Your bonus target will be 33% of base salary,,subject to the rules of the Scheme, as amended from time to time.  It is a condition of eligibility for any bonus that you are in employment and not subject to notice (whether served by you or by the Company) or any disciplinary proceedings at the date upon which payment is due to be made, which is normally on such date as the Company shall determine following the end of the end of the bonus year.
 
6.3
Neither eligibility to participate nor payment of bonus in respect of any previous period gives rise to any right, expectation or entitlement for you to receive any future payment or as to the amount of any such payment and you acknowledge and agree that the Company may exercise its discretion to award you a nil bonus.  The Company reserves the right to amend the terms of such scheme at any time, including during any bonus scheme year.
 
6.4
Any bonus paid will not be taken into account in calculating pension contributions under clause 10.
 
 
2
 
 
7.
BENEFITS
 
7.1
Effective 1 st July 2014, you will be entitled to participate in  the Company’s private medical insurance scheme, subject always to the terms of the relevant scheme (including but not limited to eligibility for benefits) in force from time to time.
 
7.2
You acknowledge that:
 
 
7.2.1
the decision on whether, and if so, to what extent, benefits may be provided to you will be taken by any scheme insurer and that you will have no claim against the Company relating to the provision of such benefits.
 
 
7.2.2
You will not be eligible for such benefits in respect of which cover is not available from the Company’s chosen insurer or is only available from such insurer subject to additional premiums or conditions.
 
 
7.2.3
For the avoidance of doubt, the Company may dismiss you at any time, and for any reason in accordance with the terms of this Agreement, even if this results in you losing any current or prospective entitlement to any benefits.
 
 
7.2.4
The Company may vary or replace or withdraw the provision of such benefit schemes at its absolute discretion.
 
 
 
8.
SICKNESS
 
8.1
You have no entitlement to contractual sick pay.
 
8.2
You must you comply with the Company’s sickness reporting procedures from time to time in force, including to:
 
 
8.2.1
contact your Manager before 10am on the first day of your absence to inform him of the fact and reason for your absence;
 
 
8.2.2
thereafter keep your Manager updated as to the nature and estimated length of your absence and provide such further details as reasonably requested from time to time;
 
 
8.2.3
provide a statement of fitness for work if you are absent from work for any period of 8 consecutive days or more
 
8.3
Your qualifying days of employment for the purposes of Statutory Sick Pay ( SSP ) are Monday to Friday.
 
8.4
Any further payments will be at the Company’s sole and absolute discretion.
 
 
3
 
 
9.
HOLIDAYS
 
9.1
You are entitled to 28 days paid holiday or the pro rata equivalent in each holiday year, in addition to bank and public holidays.
 
9.2
The holiday year runs from January to December and holiday accrues at the rate of 2.33 days per month.
 
9.3
All holidays must be approved in advance by your Manager.  You will not normally be entitled to take more than 10 working days consecutive holiday.
 
9.4
Unused holiday entitlement may only be carried over into the next holiday year with the express written consent of the Company and no payment will be made in lieu of unused holiday entitlement.
 
9.5
In the holiday year in which your Employment starts and ends your holiday entitlement will be reduced to reflect the number of complete months which you work.
 
9.6
When your Employment ends, you will be paid for any holiday which has accrued during the holiday year in which your Employment terminates but which you have not taken by the termination of your Employment.  The Company reserves the right to deduct from any payments due to you an amount in respect of holidays taken in excess of your accrued entitlement.  Holiday pay will be calculated at the rate of 1/260ths of your annual salary per day.
 
9.7
The Company may require you to take any unused holiday during your notice period.
 
10.
PENSION
 
10.1
The Company will contribute on your behalf to an HMRC approved personal pension plan an amount equal to 10% per annum of your basic annual salary for the time being subject to you providing all relevant details to the Company.  That contribution will accrue monthly in arrears.
 
10.2
A contracting out certificate pursuant to the Pension Schemes Act 1993 is not in force in relation to your Employment.
 
11.
TERMINATION OF EMPLOYMENT
 
11.1
Your employment may be terminated prior to the termination date by the Company giving you six month’s written notice or you giving six month’s written notice to the Company.   Your employment will automatically terminate on the Termination Date, unless specifically agreed between you and the Company in writing.
 
11.2
At any time after either you or the Company give notice to terminate your Employment (or if you resign without giving the required notice and the Company does not accept your resignation) then the Company may exercise all or any of the following rights:
 
 
4
 
 
 
11.2.1
totally withdraw all of your powers and responsibilities and prohibit you from undertaking any work on behalf of the Company or any Group Company;
 
 
11.2.2
require you change your duties in whatever way it considers appropriate;
 
 
11.2.3
require you not to contact or communicate with any clients, suppliers or employees of the Company about the Company’s business or affairs;
 
 
11.2.4
prohibit you from entering any of the Company’s premises;
 
 
11.2.5
require you to comply with your obligations under clause 17 ( Return of Property );
 
for a maximum period of your contractual notice period (the Garden Leave Period ).
 
11.3
If the Company exercises the right in clause 11.2 you will continue to be paid your normal contractual salary and benefits as long as you comply with your obligations under this Contract.
 
11.4
During any Garden Leave Period you remain bound by your obligations under this Contract and in particular your duties of good faith and confidentiality and you will not:
 
 
11.4.1
do any work, whether paid or unpaid on your own behalf or for any third party during this time, without the express written consent of the Company;
 
 
11.4.2
make any comment to any person about the change to your duties, except to confirm that you are on garden leave.
 
11.5
The Company reserves the right to pay you base salary in lieu of all or part of your notice entitlement.
 
11.6
Nothing in this Contract prevents the Company from terminating your employment summarily and without notice or payment in lieu of notice if you are guilty of any fundamental or repudiatory breach of contract or of any breach set out in the disciplinary rules applicable to you from time to time as justifying summary termination.
 
12.
RETIREMENT
 
12.1
There is no formal retirement age in force.
 
 
5
 
 
13.
CONFIDENTIALITY, INTELLECTUAL PROPERTY AND RESTRICTIONS
 
13.1
You will not, during your Employment or after it ends, use or disclose, directly or indirectly, to anyone other than in the proper course of your duties any Confidential Information.  For the purposes of this clause 13.1 and this Agreement, Confidential Information includes any confidential information relating to actual or potential clients, employees, officers, shareholders or agents of the Company, prices, pricing structures or policies, marketing information, intellectual property, business plans or dealings, technical data, financial information and plans, designs, formulae, product lines, research activities, advisors’ reports, lists of actual or potential clients of the Company any document marked “Confidential” or “Secret”, or any information which you have been told is confidential or which you might reasonably expect the Company to regard as confidential, or any information which has been given to the Company in confidence by potential clients or other persons.
 
13.2
The provisions of Schedule 43 (Intellectual Property Assignment) apply to you and you agree to enter into a separate deed in the terms of Schedule 3 if required by the Company.
 
13.3
The provisions of Schedule 4 (Restrictions) will apply to you after your Employment ends.
 
14.
SUSPENSION
 
14.1
The Company may suspend you on base salary and benefits for a reasonable period to investigate any allegations of misconduct or breach of the terms of your Employment.
 
14.2
During any period of suspension, you will provide whatever assistance the Company may require to allow it to complete its investigations and you must not take holiday during this time without the prior written consent of the Company.
 
15.
WORKPLACE RULES
 
15.1
In addition to the terms of this Contract, you are bound by such of the Company’s employment policies and procedures, notified to you from time to time, to the extent that these impose obligations on you.
 
16.
OTHER ACTIVITIES DURING EMPLOYMENT
 
16.1
During your Employment, you will not be involved, in any capacity, in providing services, directly or indirectly, to any other person in respect of any other trade, business or occupation unless you have first obtained the prior written consent of the Company.
 
 
6
 
 
17.
RETURN OF PROPERTY
 
17.1
At any time during the Employment, including during any Garden Leave Period, the Company may require you to return promptly to the Company:
 
 
17.1.1
all original and copy documents, software, data, Confidential Information or other material belonging to or relating to the business of the Company held in whatever medium (including electronically) which is your power, possession or control whether or not stored or held on equipment (including but not limited to any personal digital assistant (PDA), Blackberry, and/or mobile telephones) and whether or not such equipment belongs to the Company; and
 
 
17.1.2
any other property or material belonging to or relating to the business of the Company or any Group Company or belonging to any third party who has provided the property to the Company, which is in your possession or under your control.
 
17.2
During or at any time after the Employment ends, you will co-operate with any request from the Company to provide access (including passwords) to any computer, organiser or other equipment in your possession or under your control which contains information or materials relating to the Company or any of its clients, employees or suppliers.  This obligation applies to equipment owned by the Company, by you or anyone else.  You will permit the Company to inspect, copy or remove any material relating to the business of the Company.
 
18.
STATUTORY PARTICULARS
 
The statutory particulars of employment to which you are entitled under the Employment Rights Act 1996 are contained in this Contract and the attached Schedule 1.
 
19.
DATA PROTECTION
 
19.1
You consent to the Company and any Group Company holding and processing (both electronically and manually) personal data, including sensitive personal data ( Data ), relating to you for the purposes of business, personnel and pensions administration and management and for compliance with any laws and regulations applicable to the Company or any Group Company.
 
19.2
For the purposes of the Data Protection Act 1998 ( DPA ), the Company is not yet a Data Controller.  Should it become one the Company may process personal data during the course of your Employment to enable it to carry out its function properly.  You authorise the Company in accordance with the provisions of the DPA and any regulations made under it to process Data relating to you and, where appropriate, to transfer process and store such Data outside the European Economic Area (as defined from time to time).
 
 
7
 
 
20.
MONITORING OF OFFICE EQUIPMENT
 
20.1
You acknowledge and agree that the Company may monitor and /or record your use of office equipment, including your use of computer systems (including email and internet), telephones, mobile phones, facsimile machines and photocopiers.
 
20.2
You will only access and use the Company’s computer and electronic equipment for the purposes of the Company’s business.
 
21.
THIRD PARTIES
 
21.1
Only the parties to this Contract and any Group Company may enforce this Contract, subject to the terms of this Contract.
 
21.2
Pursuant to the Contracts (Rights of Third Parties) Act 1999, no other person may enforce the terms of this Contract against the Company.
 
22.
PRIOR AGREEMENTS
 
22.1
This Contract cancels and is in substitution for all previous agreements, understandings and arrangements (whether oral or in writing) in relation to any of the matters dealt with in it between you and the Company, all of which shall be deemed to have been terminated by mutual consent.
 
22.2
This Contract, and the documents specifically referred to in it, constitute the entire terms and conditions of your Employment with the Company.
 
23.
GROUP COMPANIES
 
23.1
In this Agreement Group Company means, in relation to the Company, any subsidiary or holding company, or any subsidiary of such a holding company (“holding company” and “subsidiary” having the meanings set out in section 1159 of the Companies Act 2006) or any subsidiary undertaking or parent undertaking or any subsidiary undertaking of such a parent undertaking (“parent undertaking”, “subsidiary undertaking” and “undertaking” having the meanings set out in sections 1161 and 1162 of the Companies Act 2006) and any reference to the Group shall be construed accordingly.
 
24.
GOVERNING LAW
 
This Agreement will be governed by and construed in accordance with the laws of England and each of the parties submits to the exclusive jurisdiction of the English courts.
 
IN WITNESS whereof the parties hereto have executed this Agreement as a Deed on the day and year first written above.
 
 
8
 
 
EXECUTED as a Deed by
)
MIDATECH LIMITED
)
 
)
Director/Secretary; and
 
Director/Secretary
 
   
EXECUTED as a Deed by
)
Craig Cook
)
in the presence of:
)
 
Name
   
Address
   
     
     
Occupation
   
 
 
9
 
 
Schedule 1
Statutory particulars
 
In addition to your terms of employment, the Company is required to notify you of the following particulars.  These do not form part of your terms of employment.
 
1.
Disciplinary Rules, Dismissal and Disciplinary Procedures
 
The disciplinary rules and the disciplinary and dismissals procedures applicable to you are available on the Company shared drive and specify to whom you can apply if dissatisfied with any disciplinary decision relating to you or any decision to dismiss you and the manner in which any such an application should be made.
 
2.
Grievance Procedures
 
The grievance procedure applicable to you is available from the Company Secretary and specifies to whom you can apply for the purpose of seeking redress of any grievance relating to your employment and the manner in which any such application should be made.  The grievance procedures do not have contractual force and effect unless otherwise stated.
 
3.
Collective Agreements
 
There are no collective agreements affecting your employment.
 
 
10
 
 
Schedule 2
Duties
 

 
The following is a non-exhaustive summary of your job description and duties, subject to the provisions of clause 3 of your contract of employment:
 

 
Main Responsibilities
 

 
Planning
 
 
 
1.    Assist in formulating the company's future direction and supporting tactical initiatives
 
2.    Monitor and direct the implementation of strategic business plans
 
3.    Develop financial and tax strategies
 
4.    Manage the capital request and budgeting processes
 
5.    Develop performance measures that support the company's strategic direction
 
 
Operations
 
 
 
 
 
 
 
 
1.    Participate in key decisions as a member of the executive management team
 
2.    Maintain in-depth relations with all members of the management team
 
3.    Manage the accounting, human resources, investor relations, legal, tax, and treasury departments
 
4.    Oversee the financial operations of subsidiary companies and foreign operations
 
5.    Manage any third parties to which functions have been outsourced
 
6.    Oversee the company's transaction processing systems
 
7.    Implement operational best practices
 
8.    Oversee employee benefit plans, with particular emphasis on maximizing a cost-effective benefits package
 
9.    Supervise due diligence and negotiate Licences with CEO & BD team
 
10.  Manage all systems & IT
 
11.  Manage Human Resources
 
12.  Manage Facilities
 
 
 
 
11
 
 
Financial
Information
 
1.    Oversee the issuance of financial information
 
2.    Personally review and approve all regulatory filings
 
3.    Report financial results to the board of directors
 
 
Risk Management
 
 
 
 
 
1.    Understand and mitigate key elements of the company's risk profile
 
2.    Monitor all open legal issues involving the company, and legal issues affecting the industry
 
3.    Construct and monitor reliable control systems
 
4.    Maintain appropriate insurance coverage
 
5.    Ensure that the company complies with all legal and regulatory requirements
 
6.    Ensure that record keeping meets the requirements of auditors and government agencies
 
7.    Report risk issues to the audit committee of the board of directors
 
8.    Maintain relations with external auditors and investigate their findings and recommendations
 
 
Funding
 
1.    Monitor cash balances and cash forecasts
 
2.    Arrange for debt and equity financing
 
3.    Invest funds
 
 
Third Parties
 
1.    Participate in conference calls with the investment community
 
2.    Maintain banking relationships
 
3.    Represent the company with investment bankers and investors

 
12
 
 
Schedule 3
Intellectual Property  & Assignment
 
THIS AGREEMENT dated xxxxxxx is made between:-
 
(1)
MIDATECH LIMITED whose registered office is at 6 St Andrew Street, London EC4A 3LX (the Company); and
 
(2)
Craig Cook (You) .
 
 
RECITALS :
 
A
You are an employee of the Company and you carry out financial accounting and management on behalf of the Company.   In the course of your work you will gain knowledge of intellectual property and Technology that is owned and developed by the Company.
 
B
You wish to comply with the obligations set out in this Agreement and to assign to the Company all of your rights, title and interest in the Technology, and the Company wishes to take an assignment of the Technology, subject to and in accordance with the terms of this Agreement.
 
 
THIS ASSIGNMENT WITNESSES as follows:-
 
1.
ASSIGNMENT
 
1.1
In consideration of the payment of the sum of £1 (one pound sterling) now paid by the Company to you (receipt of which is acknowledged), and without prejudice to the other provisions of this Agreement you hereby assign and transfer to the Company absolutely all of your right, title and interest in and to the Technology.
 
1.2
The assignment effected by this clause 1 shall include, without limitation, the assignment and transfer of:-
 
 
1.2.1
all patents and other Intellectual Property that may be granted pursuant to any applications listed in the Schedule, as well as all patents or other intellectual property that may derive priority from or have equivalent claims to or be based upon the Technology in any country of the world (and including supplementary protection certificates, divisions, continuations, continuations in part, reissues and extensions), and the Technology shall be deemed to include all such items of property; and
 
 
1.2.2
all rights of action, powers and benefits arising from ownership of the Technology, including without limitation the right to apply for, prosecute and/or obtain patent and other intellectual property rights or protection throughout the world in respect of the Technology and the right to sue for damages and other legal and equitable remedies in respect of all causes of action arising prior to, on or after the date of this Assignment; and
 
 
13
 
 
 
1.2.3
all rights of ownership of any materials that form part of the Technology.
 
1.3
You shall execute such documents and give such assistance as the Company may require:-
 
 
1.3.1
to secure the vesting in the Company of all rights in the Technology;
 
 
1.3.2
to uphold the Company’s rights in the Technology; and
 
 
1.3.3
to defeat any challenge to the validity of, and resolve any questions concerning, the Technology.
 
2.
WARRANTIES, REPRESENTATIONS AND UNDERTAKINGS
 
2.1
You warrant, represent and undertake that:-
 
 
2.1.1
immediately prior to the assignment in clause 1 above, you have not been and you are not currently a party to any agreement or understanding, whether oral or written, which would in any manner be inconsistent with the assignment of rights provided for in this Assignment; and
 
 
2.1.2
during the term of this Assignment you shall not enter into any agreement or understanding, oral or written, nor engage in any activity, which would in any manner be inconsistent with the provisions of this Assignment.
 
3.
INTELLECTUAL PROPERTY RIGHTS
 
3.1
You acknowledge that in the course of your employment and as part of your duties you may conceive or make, individually or with others, certain Inventions and you may develop or produce, individually or with others, certain works in which copyright and/or unregistered design right will subsist in various media, including but not limited to electronic materials (collectively, Creative Works ), and you agree that you will promptly disclose in writing to the Company all Inventions and Creative Works.
 
3.2
You acknowledge that any Inventions or Creative Works and any and all Intellectual Property subsisting or which may in the future subsist in such Inventions or Creative Works whether or not conceived or made during working hours, including, without limitation, those which:
 
 
3.2.1
relate in any manner to the business of the Company or any Group Company or to its actual or demonstrably anticipated activities; or
 
 
3.2.2
result from or are made in the course of your employment by the Company; or
 
 
14
 
 
 
3.2.3
involve the use of any equipment, supplies, facilities, confidential information, documents, Intellectual Property or time of the Company or any other Group Company,
 
will on creation vest in and be the exclusive property of the Company in the United Kingdom or any other part of the universe and where the same does not automatically vest as aforesaid you agree to assign the same to the Company (or as it may direct) or in the case of any future copyright in the same you hereby assign such copyright to the Company.
 
3.3
You agree that, without limitation to the foregoing:
 
 
3.3.1
any Invention disclosed by you to a third person or described in a patent or registered design application filed by you or on your behalf; and
 
 
3.3.2
any Creative Work disclosed to a third person, published or the subject of an application for copyright or other registration filed by you or on your behalf,
 
during or within six months following termination of your employment will be presumed to have been written, developed, produced, conceived or made by you during the Employment, unless proved by you to have been written, developed, produced, conceived or made by you following the termination of the Employment.
 
3.4
You hereby irrevocably waive any rights which you may have in the Inventions or the Creative Works which are or have been conferred on you by chapter IV of Part I of the Copyright, Designs and Patents Act 1988 headed “Moral Rights” and by any other laws of a similar or equivalent nature in any of the countries of the world.
 
3.5
You will also, at the Company’s request and expense, execute specific assignments of any Inventions or Creative Work and execute, acknowledge and deliver such other documents and take such further action as the Company may require, at any time during or subsequent to the period of your employment, to vest or evidence title in Inventions or Creative Works in the Company (or as it may direct) and to obtain, maintain and defend the Intellectual Property in the Inventions or Creative Works in any and all countries or to otherwise give effect to the provisions of this agreement.
 
3.6
You hereby irrevocably appoint the Company to be your attorney in your name and on your behalf to execute and do any such instrument or thing and generally to use your name for the purpose of giving to the Company or its nominee the full benefit of the provisions of this clause 3 and you acknowledge in favour of any third party that a certificate in writing signed by any Director or the Secretary of the Company that any instrument or act falls within the authority hereby conferred shall be conclusive evidence that such is the case.
 
3.7
You shall not knowingly do or permit to be done any act or omit to do any thing which might imperil, jeopardise or prejudice any of the rights referred to in this clause 3 or which might invalidate or prejudice any application made by the Company for Intellectual Property.
 
 
15
 
 
4.
DEFINITIONS
 
4.1
In this Assignment, the following definitions apply:
 
 
4.1.1
Intellectual Property shall include: all patents, rights to inventions, copyright and related rights, trade marks and service marks, trade names and domain names, rights in get-up, rights to goodwill and to sue for passing off and unfair competition, rights in designs, rights in computer software, database rights, rights in confidential information (including know-how and trade secrets) and any other intellectual property rights, in each case whether registered or unregistered and including all applications (and rights to apply) for, and renewals or extensions of, such rights and all similar or equivalent rights or forms of protection which subsist or will subsist, now or in the future, in any part of the world;
 
 
4.1.2
Inventions shall include any inventions, ideas, discoveries, developments, writings, designs, drawings, improvements or innovations, whether or not patentable or capable of registration, and whether or not recorded in any medium;
 
 
4.1.3
Technology means Inventions and developed technology, material and know-how relating to the exploitation of gold nanoparticle technology.
 
5.
GENERAL
 
5.1
This Agreement and undertaking shall be binding upon your heirs, executors, administrators, successors and/or shall ensure to the benefit of any heirs, executors, administrators, successors and/or assigns of the Company.
 
5.2
Your obligations under clauses 1.2, 1.3, 2, 3 and 5.1 shall continue in force without limit of time.
 
5.3
This Agreement shall be governed by English Law, and you and the Company submit to the jurisdiction of the English Courts in respect of any dispute arising in connection therewith.
 

 
IN WITNESS whereof the parties hereto have executed this Agreement as a Deed on the day and year first written above.
 
 
16
 
 
 
EXECUTED as a Deed by
)
MIDATECH LIMITED
)
 
)
Director/Secretary; and
 
Director/Secretary
 
   
EXECUTED as a Deed by
)
CRAIG COOK
 
   
in the presence of:
)
 
Name
   
Address
   
     
     
Occupation
   
 
 
17
 
 
Schedule 4
 Restrictions after employment ends
 
1.
You agree that, during the Restricted Period, you will not act in competition with the Company or any Group Company, directly or indirectly, in any capacity by:
 
1.1
soliciting or enticing away from the Company or any Group Company any Customer or Prospective Customer;
 
1.2
doing business with, or otherwise dealing with, any Customer or Prospective Customer;
 
1.3
soliciting or enticing away from the Company or any Group Company any Key Employee;
 
1.4
interfering with the arrangements between the Company or any Group Company and any Supplier.
 
2.
The Company accepts, as trustee for each Group Company, the benefit of all undertakings given by you in this Schedule to any Group Company.
 
3.
The provisions of this Schedule shall apply only in respect of services with which you were either materially involved or in respect of which you had access to Confidential Information or for which you were responsible at any time during the Relevant Period.
 
4.
The provisions of this Schedule are severable and if any provision or identifiable part is held to be unenforceable by any court of competent jurisdiction, then such unenforceability shall not affect the enforceability of the remaining provisions or identifiable parts of this Schedule.
 
5.
For the purposes of this Schedule, the following words have the meanings set out below:
 
Confidential Information includes the material described in clause 13 (Confidentiality) of the Agreement;
 
Customer means any person with whom the Company or any Group Company
 
(a)
has, at the Termination Date, arrangements in place pursuant to which the Company or any Group Company supplies goods or services; or
 
(b)
with whom the Company or any Group Company has been in the habit of dealing at any time during the Relevant Period; or
 
(c)
in relation to whom you had access to Confidential Information at any time during the Relevant Period; and, in any event
 
 
18
 
 
(d)
with whom you had personal contact or dealings in the course of your Employment at any time during the Relevant Period;
 
Key Employee means any person who is employed or engaged to provide services personally at the Termination Date by the Company or any Group Company, and who, during the Relevant Period, had material contact with you; and
 
(a)
who reported to you; or
 
(b)
who had material contact with customers or suppliers of the Company or any Group Company in the course of your Employment; or
 
(c)
who was a member of the Board or reported directly to a member of the Board; or who was a member of the senior management team of the Company or any Group Company; or
 
(d)
whose job duties involved research and development to a material extent.
 
Prospective Customer means any person to whom, at the Termination Date, the Company or any Group Company has offered to supply goods or services, or to whom the Company or any Group Company has provided details of the terms on which it would or might be willing to supply goods or services, or with whom the Company or any Group Company has had any negotiations or discussions regarding the possible supply of goods or services; and in each case:
 
(a)
with whom you had personal contact or dealings in the course of the Employment at any time during the Relevant Period; or
 
(b)
in relation to whom you had access to Confidential Information at any time during the Relevant Period.
 
Relevant Period means, where you are prohibited from undertaking any work on behalf of the Company or any Group Company in accordance with clause 11.2 ( Garden Leave ), the period of two years immediately before the start of the Garden Leave Period (as defined in the Agreement); and otherwise, the period of two years ending on the Termination Date, [and in either case, the period of the your Employment if you have been employed by the Company for less than two years.]
 
Restricted Period means the period of 6 months immediately following the Termination Date, reduced by a period equal to the length of any Garden Leave Period imposed in accordance with clause 11.2.1 ( Garden Leave ).
 
Supplier means any person with whom the Company or any Group Company has, at the Termination Date, arrangements in place for the supply of goods or services to the Company or any Group Company   on preferential terms.
 
Termination Date means the date on which the Employment ends for whatever reason, whether lawful or not.
 
 
19 
Exhibit 8.1

Subsidiaries
Country of Incorporation
Voting Interest
Subsidiaries of Midatech Pharma PLC
   
Midatech Pharma (Wales) Limited
England and Wales
100%
Midatech Limited
England and Wales
100%
Midatech Pharma US Inc.
United States (Delaware)
100%
Midatech Pharma Pty Limited
Australia
100%
Joint Ventures with Midatech Limited
   
MidaSol Therapeutics GP (1)
Cayman Islands
50%
Syntara LLC (2)(3)
United States (Delaware)
50%
Subsidiaries of Midatech Limited
   
Midatech Pharma Espana SL
Spain
100%
Midatech Andalucia SL (3)
Spain
100%
Pharmida AG (3)
Switzerland
100%
Subsidiaries of Midatech Pharma US Inc.
   
DARA Therapeutics, Inc.
United States (North Carolina)
100%

                                 
(1) 
Joint venture between Midatech Limited and MonoSol.
(2) 
Joint venture between Midatech Limited and Immunotope Inc. The percentage ownership of the entity is determined by reference to the partnership agreement and varies from time to time depending on capital committed. While 50% is the economic interest, Midatech Limited can currently direct 49% of the voting rights.
(3) 
Dormant entity or entities in the process of being wound-down.

 
 
Exhibit 12.1
 
Certification by the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James N. Phillips, certify that:

 
1.
I have reviewed this annual report on Form 20-F of Midatech Pharma PLC (the “Company”);

 
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 company as of, and for, the periods presented in this report;

 
4.
The Company’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)) for the Company 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 Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
(b)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
(c)
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’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 Company’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 Company’s internal control over financial reporting.
 
 
 
Date: April 13, 2016
/s/ James N. Phillips
 
James N. Phillips
 
Chief Executive Officer
 
 
2
Exhibit 12.2
 
Certification by the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Nicholas Robbins-Cherry, certify that:

 
1.
I have reviewed this annual report on Form 20-F of Midatech Pharma PLC (the “Company”);

 
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 company as of, and for, the periods presented in this report;

 
4.
The Company’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)) for the Company 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 Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
(b)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
(c)
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’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 Company’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 Company’s internal control over financial reporting.



Date: April 13, 2016
/s/ Nicholas Robbins-Cherry
 
Nicholas Robbins-Cherry
 
Chief Financial Officer

 
2
Exhibit 13.1
 

Certification by 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

In connection with the Annual Report on Form 20-F of Midatech Pharma PLC (the “Company”) for the year ended December 31, 2015, as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), the undersigned James N. Phillips, as Chief Executive Officer of the Company, and Nicholas Robbins-Cherry, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

 
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: April 13, 2016
/s/ James N. Phillips
 
James N. Phillips
 
Chief Executive Officer

 
/s/ Nicholas Robbins-Cherry
 
Nicholas Robbins-Cherry
 
Chief Financial Officer
 
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 HAS BEEN PROVIDED TO MIDATECH PHARMA PLC AND WILL BE RETAINED BY MIDATECH PHARMA PLC AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.
 
 
 
Exhibit 15.1
 
Consent of Independent Registered Public Accounting Firm

 

 
Midatech Pharma PLC
Abingdon, Oxfordshire
United Kingdom

 
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-209365) of our report dated April 13, 2016, relating to the consolidated financial statements of Midatech Pharma PLC which appears in this Annual Report on Form 20-F.
 

 
/s/ BDO LLP
 

BDO LLP
Reading, United Kingdom
April 13, 2016