UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2017

OR

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

For the transition period from                      to                     

Commission File Number: 001-36644

 

CALITHERA BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-2366329

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

343 Oyster Point Blvd., Suite 200

South San Francisco, CA 94080

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (650) 870-1000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (do not check if a smaller reporting company)

  

Smaller reporting company

 

Emerging Growth Company 

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

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

As of May 5, 2017, the registrant had 35,294,575 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Calithera Biosciences, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2017

INDEX

 

 

  

Page

PART I. FINANCIAL INFORMATION  

  

3

 

 

 

Item 1.

 

Financial Statements (Unaudited)

  

3

 

 

 

 

 

 

 

Condensed Balance Sheets at March 31, 2017 and December 31, 2016

 

3

 

 

Condensed Statements of Operations for the Three Months Ended March 31, 2017 and 2016 

 

4

 

 

Condensed Statements of Comprehensive Loss for the Three Months Ended March 31, 2017 and 2016

 

5

 

 

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016

 

6

 

 

Notes to Condensed Financial Statements 

  

7

 

 

 

 

 

Item 2.

 

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

  

15

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk 

  

23

 

 

 

 

 

Item 4.

 

Controls and Procedures 

  

23

 

 

 

 

 

PART II. OTHER INFORMATION 

  

24

 

 

 

Item 1.

 

Legal Proceedings

  

24

 

 

 

 

 

Item 1A.

 

Risk Factors

  

24

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

46

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

  

46

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

  

46

 

 

 

 

 

Item 5.

 

Other Information

  

46

 

 

 

 

 

Item 6.

 

Exhibits

  

47

 

 

 

 

 

SIGNATURES

  

48

 

 

 

EXHIBIT INDEX

 

49

 

 

2


 

PART I. – FINANC IAL INFORMATION

Item 1. Financial Statements

 

Calithera Biosciences, Inc.

Condensed Balance Sheets

(Unaudited)

(In thousands, except per share amounts)

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

89,072

 

 

$

10,601

 

Short-term investments

 

66,255

 

 

 

41,180

 

Receivable from collaboration

 

13,550

 

 

 

 

Prepaid expenses and other current assets

 

1,805

 

 

 

1,780

 

Total current assets

 

170,682

 

 

 

53,561

 

Long-term investments

 

51,743

 

 

 

 

Restricted cash

 

440

 

 

 

46

 

Property and equipment, net

 

913

 

 

 

899

 

Other assets

 

130

 

 

 

290

 

Total assets

$

223,908

 

 

$

54,796

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

600

 

 

$

398

 

Accrued liabilities

 

4,227

 

 

 

4,055

 

Current portion of deferred revenue

 

29,017

 

 

 

 

Total current liabilities

 

33,844

 

 

 

4,453

 

Deferred revenue, less current portion

 

23,790

 

 

 

 

Deferred rent

 

543

 

 

 

437

 

Total liabilities

 

58,177

 

 

 

4,890

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 200,000 shares authorized

     as of March 31, 2017 and December 31, 2016;

    35,290 and 21,502 shares issued and outstanding as

    of March 31, 2017 and December 31, 2016, respectively

 

4

 

 

 

2

 

Additional paid-in capital

 

293,852

 

 

 

172,419

 

Accumulated deficit

 

(128,094

)

 

 

(122,502

)

Accumulated other comprehensive loss

 

(31

)

 

 

(13

)

Total stockholders’ equity

 

165,731

 

 

 

49,906

 

Total liabilities and stock and stockholders’ equity

$

223,908

 

 

$

54,796

 

 

See accompanying notes.

 

 

 

3


 

Calithera Biosciences, Inc.

Condensed Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

Collaboration revenue

 

$

4,192

 

 

$

 

Total revenue

 

 

4,192

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

6,640

 

 

 

7,066

 

General and administrative

 

 

3,308

 

 

 

2,591

 

Total operating expenses

 

 

9,948

 

 

 

9,657

 

Loss from operations

 

 

(5,756

)

 

 

(9,657

)

Interest income, net

 

 

169

 

 

 

75

 

Net loss

 

$

(5,587

)

 

$

(9,582

)

Net loss per share, basic and diluted

 

$

(0.22

)

 

$

(0.52

)

Weighted average common shares used to compute

     net loss per share, basic and diluted

 

 

25,279

 

 

 

18,389

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

4


 

Calithera Biosciences, Inc.

Condensed Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Net loss

$

(5,587

)

 

$

(9,582

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

Net unrealized gain (loss) on available-for-sale securities

 

(18

)

 

 

73

 

Total comprehensive loss

$

(5,605

)

 

$

(9,509

)

 

See accompanying notes.

 

 

 

5


 

Calithera Biosciences, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

Net loss

$

(5,587

)

 

$

(9,582

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

80

 

 

 

85

 

Amortization of premiums on investments

 

79

 

 

 

175

 

Stock-based compensation

 

1,149

 

 

 

1,027

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivable from collaboration

 

(13,550

)

 

 

 

Prepaid expenses and other current assets

 

(25

)

 

 

221

 

Other assets

 

161

 

 

 

 

Accounts payable

 

180

 

 

 

488

 

Accrued liabilities

 

(149

)

 

 

(14

)

Deferred revenue

 

52,807

 

 

 

 

Deferred rent, non-current

 

106

 

 

 

(6

)

Net cash provided by (used in) operating activities

 

35,251

 

 

 

(7,606

)

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

Purchases of investments

 

(94,015

)

 

 

(12,486

)

Proceeds from sale or maturity of investments

 

17,100

 

 

 

22,075

 

Purchase of property and equipment

 

(50

)

 

 

(165

)

Change in restricted cash

 

(394

)

 

 

 

Net cash provided by (used in) investing activities

 

(77,359

)

 

 

9,424

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon public offering, net

 

75,673

 

 

 

 

Proceeds from issuance of common stock under stock purchase agreement, net

 

7,914

 

 

 

 

Proceeds from issuance of common stock through an at-the-market offering, net

 

36,918

 

 

 

4,236

 

Proceeds from stock option exercises and employee stock plan purchases

 

74

 

 

 

7

 

Net cash provided by financing activities

 

120,579

 

 

 

4,243

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

78,471

 

 

 

6,061

 

Cash and cash equivalents at beginning of period

 

10,601

 

 

 

6,105

 

Cash and cash equivalents at end of period

$

89,072

 

 

$

12,166

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Information:

 

 

 

 

 

 

 

Unpaid amounts related to property and equipment purchases

$

45

 

 

$

 

Unpaid amounts related stock issuance costs

$

298

 

 

$

 

 

See accompanying notes.

 

 

6


 

Calithera Biosciences, Inc.

Notes to Condensed Financial Statements

 

 

1. Organization and Basis of Presentation

Calithera Biosciences, Inc. (the “Company”) was incorporated in the State of Delaware on March 9, 2010. The Company is a clinical-stage biopharmaceutical company focused on discovering and developing novel small molecule drugs directed against tumor metabolism and tumor immunology targets for the treatment of cancer. The Company’s principal operations are based in South San Francisco, California, and it operates in one segment.

 

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The interim condensed balance sheet as of March 31, 2017, and the statements of operations, comprehensive loss, and cash flows for the three months ended March 31, 2017 and 2016 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s condensed financial statements included in this report. The financial data and the other information disclosed in these notes to the financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any other future annual or interim period. The balance sheet as of December 31, 2016 included herein was derived from the audited financial statements as of that date. These financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Form 10-K as filed with the Securities and Exchange Commission (“SEC”).

Use of Estimates

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to clinical trial accrued liabilities, revenue recognition, fair value of marketable securities, income taxes, and stock-based compensation. Management bases its estimates on historical experience and on various other market specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents which consist primarily of amounts invested in money market accounts, are stated at fair value.

Restricted Cash

Restricted cash consists of money market funds held by the Company’s financial institution as collateral for the Company’s obligations under its facility lease for the Company’s corporate headquarters in South San Francisco, California.

Investments

All investments have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its investments at the time of purchase and reevaluates such designation as of each balance sheet date. Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive loss. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in interest income, net. The cost of securities sold is based on the specific-identification method. Interest on marketable securities is included in interest income, net.

7


 

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, investments and restricted cash. The Company invests in a variety of financial instruments and, by its policy, limits these financial instruments to high credit quality securities issued by the U.S. government, U.S. government-sponsored agencies and highly rated banks and corporations, subject to certain concentration limits. The Company’s cash, cash equivalents, investments and restricted cash are held by financial institutions in the United States that management believes are of high credit quality. Amounts on deposit may at times exceed federally insured limits.

All of the Company’s receivable from collaboration and collaboration revenue are derived from its collaboration and license agreement with Incyte Corporation (Incyte) as described in Note 10 Collaboration and Licensing Agreements - Incyte Collaboration and License Agreement .

Revenue Recognition

The Company recognizes revenue from collaboration, license or research arrangements when persuasive evidence of an arrangement exists; transfer of technology has been completed, services are performed or products have been delivered; the fee is fixed or determinable; and collection is reasonably assured. For arrangements with multiple deliverables, the Company evaluates each deliverable to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has stand-alone value to the customer. If the Company determines that the deliverables do not have stand-alone value then all such deliverables are combined into one or more units of accounting, with consideration given to whether one deliverable is considered the predominant deliverable under the arrangement.

The selling price used for each unit of accounting will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available or estimated selling price if neither vendor-specific nor third-party evidence is available. Management may be required to exercise considerable judgment in determining whether a deliverable is a separate unit of accounting and in estimating the selling prices of identified units of accounting for new agreements. Where multiple deliverables are combined as a single unit of accounting, revenues are recognized based on the performance requirements of the related agreement. For a combined unit of accounting, non-refundable upfront payments are recognized in a manner consistent with the final deliverable, which has generally been ratably over the estimated period of continued involvement. Management periodically reviews the basis for its estimates, and it may change the estimates if circumstances change. These changes can significantly change the timing of revenue recognized. Amounts received in advance of performance are recorded as deferred revenue. Upfront payments are classified as collaboration revenue in the Company’s statements of operations.

The Company has not made a policy election to use the milestone method of accounting. Instead, the Company will account for milestone payments over the remaining period of performance for the combined unit of account. Therefore, the development and commercial milestones, if and when achieved, will be recorded as revenue over the period of performance for the combined unit of account. If there are no remaining performance obligations, milestone payments will be recognized when the event is achieved and the applicable revenue criteria are met.

Accrued Research and Development Costs

The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and includes these costs in accrued liabilities in the balance sheets and within research and development expense in the statements of operations. These costs are a significant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed, number of patients enrolled, and the rate of patient enrollments may vary from the Company’s estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations.

8


 

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding during the period without consideration of common stock equivalents. Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.  

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued a comprehensive new standard on revenue from contracts with customers, Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers ( Topic 606 ) . The standard’s core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On July 9, 2015, the FASB voted to delay the effective date of the new standard by one year. The standard would become effective for the Company beginning in the first quarter of 2018. Early application would be permitted in 2017. Entities would have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance. In 2016, the FASB updated the guidance for reporting revenue gross versus net to improve the implementation guidance on principal versus agent considerations, and for identifying performance obligations and the accounting of intellectual property licenses. In addition, the FASB introduced practical expedients and made narrow scope improvements to the new accounting guidance.

The Company currently plans to adopt the accounting standard update on January 1, 2018 and has not determined which adoption method it will utilize. The Company is currently at the early stages of analyzing its collaboration and license agreement with Incyte to determine the differences in the accounting treatment under ASU 2014-09 compared to the current accounting treatment. The consideration the Company is eligible to receive under this agreement includes upfront payments, research and development funding, milestone payments, and royalties. The new revenue recognition standard differs from the current accounting standard in many respects, such as in the accounting for variable consideration and the measurement of progress toward completion of performance obligations. While the Company has not completed an assessment of the impact of adoption, the adoption of ASU 2014-09 may have a material effect on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases , which is aimed at making leasing activities more transparent, and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The ASU is effective for all interim and annual reporting periods beginning after December 15, 2018 with early adoption permitted. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on the financial statements. The Company plans to adopt the new standard effective January 1, 2019.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting , which is intended to simplify several aspects of the accounting for share-based payment award transactions, including the income tax consequences, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company adopted ASU No. 2016-09 on January 1, 2017 following the modified retrospective approach. Under this guidance, on a prospective basis, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (APIC). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement. In addition, the guidance eliminates the requirement that excess tax benefits be realized before companies can recognize them. The ASU requires a cumulative-effect adjustment for previously unrecognized excess tax benefits in opening retained earnings in the annual period of adoption. As of January 1, 2017, the Company had no previously unrecognized excess tax benefits. Additionally, as provided for under this new guidance, the Company elected to account for forfeitures as they occur. The impact upon adoption of this election was a $5,000 cumulative-effect adjustment, which was recorded to accumulated deficit in the statement of stockholders’ equity.

3. Fair Value Measurements

Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Financial instruments include cash and cash equivalents, short-term investments, receivable from collaboration, accounts payable, accrued liabilities and the current portion of deferred revenue that approximate fair value due to their relatively short maturities.

9


 

Assets and liabilities recorded at fair value on a recur ring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be p aid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three tie r fair value hierarchy for disclosure of fair value measurements as follows:

Level 1 —Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 —Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3 —Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third party data providers, including but not limited to, benchmark yields, interest rate curves, reported trades, broker/dealer quotes and market reference data. The Company classifies its corporate notes and U.S. government agency securities as Level 2. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. There were no transfers between Level 1 and Level 2 during the periods presented.

The following table sets forth the fair value of our financial assets and liabilities, allocated into Level 1, Level 2 and Level 3, that was measured on a recurring basis (in thousands):

 

 

March 31, 2017

 

 

 

Level 1

 

 

 

 

Level 2

 

 

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,592

 

 

 

 

$

 

 

 

 

$

 

 

$

16,592

 

Corporate notes and commercial paper

 

 

 

 

 

 

 

97,214

 

 

 

 

 

 

 

 

97,214

 

U.S. treasury securities

 

 

 

 

 

 

 

35,145

 

 

 

 

 

 

 

 

35,145

 

U.S. government agency securities

 

 

 

 

 

 

 

58,060

 

 

 

 

 

 

 

 

58,060

 

Total financial assets

 

$

16,592

 

 

 

 

$

190,419

 

 

 

 

$

 

 

$

207,011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Level 1

 

 

 

 

Level 2

 

 

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

9,354

 

 

 

 

$

 

 

 

 

$

 

 

$

9,354

 

Corporate notes and commercial paper

 

 

 

 

 

 

 

23,314

 

 

 

 

 

 

 

 

23,314

 

U.S. treasury securities

 

 

 

 

 

 

 

2,000

 

 

 

 

 

 

 

 

2,000

 

U.S. government agency securities

 

 

 

 

 

 

 

16,666

 

 

 

 

 

 

 

 

16,666

 

Total financial assets

 

$

9,354

 

 

 

 

$

41,980

 

 

 

 

 

 

 

$

51,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10


 

4. Financial Instruments

Cash equivalents and investments, all of which are classified as available-for-sale securities and restricted cash, consisted of the following (in thousands):

 

 

March 31, 2017

 

 

 

December 31, 2016

 

 

Cost

 

 

Unrealized Gain

 

 

Unrealized (Loss)

 

 

Estimated Fair Value

 

 

 

Cost

 

 

Unrealized Gain

 

 

Unrealized (Loss)

 

 

Estimated Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

16,592

 

 

$

 

 

$

 

 

$

16,592

 

 

 

 

$

9,354

 

 

$

 

 

$

 

 

$

9,354

 

Corporate notes and commercial paper

 

97,231

 

 

 

2

 

 

 

(19

)

 

 

97,214

 

 

 

 

 

23,325

 

 

 

 

 

 

(11

)

 

 

23,314

 

U.S. treasury securities

 

35,146

 

 

 

2

 

 

 

(3

)

 

 

35,145

 

 

 

 

 

2,000

 

 

 

 

 

 

 

 

 

2,000

 

U.S. government agency securities

 

58,073

 

 

 

4

 

 

 

(17

)

 

 

58,060

 

 

 

 

 

16,668

 

 

 

1

 

 

 

(3

)

 

 

16,666

 

 

$

207,042

 

 

$

8

 

 

$

(39

)

 

$

207,011

 

 

 

 

$

51,347

 

 

$

1

 

 

$

(14

)

 

$

51,334

 

Classified as:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

$

88,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

10,108

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

66,255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,180

 

Long-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

51,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

 

 

 

 

 

 

 

 

 

 

 

440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

$

207,011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

51,334

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2017, the remaining contractual maturities of available-for-sale securities were less than two years. There have been no significant realized gains or losses on available-for-sale securities for the periods presented. As of March 31, 2017, the Company had a total of $207.1 million in cash, cash equivalents, and investments, which includes $0.5 million in cash and $206.6 million in cash equivalents and investments.

 

5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 

 

March 31, 2017

 

 

December 31, 2016

 

Accrued bonus and payroll expenses

$

1,277

 

 

$

2,471

 

Accrued professional and consulting services

 

545

 

 

 

202

 

Accrued clinical and manufacturing expenses

 

2,236

 

 

 

1,208

 

Accrued preclinical and research expenses

 

42

 

 

 

91

 

Other

 

127

 

 

 

83

 

Total accrued liabilities

$

4,227

 

 

$

4,055

 

 

6. Sublease Agreement

In February 2017, the Company entered into a non-cancelable sublease agreement for a portion of its facilities, commencing March 2017 through February 2020. Future annual minimum sublease proceeds related to this agreement as of March 31, 2017 (in thousands) are as follows:

 

Year ending December 31:

 

 

 

2017

$

792

 

2018

 

1,083

 

2019

 

1,115

 

2020

 

187

 

Total

$

3,177

 

 

 

7.  Stockholders’ Equity

Public Offering

In March 2017, the Company entered into an underwriting agreement with Leerink Partners LLC, as representative of several underwriters named therein (collectively, the “Underwriters”), pursuant to which the Company issued and sold 7,854,500 shares of common stock, including 1,024,500 shares sold pursuant to the Underwriters’ exercise in full of their option to purchase additional

11


 

shares. The price to the public in the offering was $10.25 per share, and the Underwriters purchased the shares from the Company at a price of $9.635 per share. The net proceeds to the Company from this public offering were approximately $75.4 million, after deducting underwriting discounts and commissions and other offering expenses. As of March 31, 2017, $0.3 million of offering e xpenses are included in accrued liabilities on the balance sheet.

Incyte Stock Purchase Agreement

In January 2017, the Company entered into a stock purchase agreement with Incyte, pursuant to which the Company issued and sold 1,720,430 shares of common stock, at a price of $4.65 per share to Incyte, resulting in net proceeds of approximately $7.9 million, after deducting offering expenses.

At-the-Market Offering

In November 2015, the Company entered into a sales agreement with Cowen and Company LLC (“Cowen”), as sales agent and underwriter, pursuant to which the Company could issue and sell shares of its common stock with an aggregate maximum offering price of $50.0 million under an at-the-market (“ATM”) offering program. The Company paid Cowen up to 3% of gross proceeds for the common stock sold through the sales agreement.

During the three months ended March 31, 2017, the Company sold an aggregate of 4,188,679 shares of common stock pursuant to the ATM program, at an average price of approximately $9.06 per share for gross proceeds of $38.0 million, resulting in net proceeds of $36.9 million after deducting underwriting fees and offering expenses. As of March 31, 2017, the Company had sold all available shares under the ATM program.

 

8. Stock Based Compensation

A summary of stock option activity is as follows (in thousands, except weighted-average exercise price and contractual term amounts):

 

 

Options Outstanding

 

 

Number of

Shares Underlying

Outstanding

Options

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Value

Intrinsic

 

Outstanding — December 31, 2016

 

3,228

 

 

$

6.41

 

 

 

 

 

 

 

 

 

Options granted

 

25

 

 

$

8.43

 

 

 

 

 

 

 

 

 

Options exercised

 

(25

)

 

$

2.99

 

 

 

 

 

 

 

 

 

Options cancelled

 

(16

)

 

$

4.51

 

 

 

 

 

 

 

 

 

Outstanding — March 31, 2017

 

3,212

 

 

$

6.47

 

 

 

8.25

 

 

$

19,434

 

Exercisable — March 31, 2017

 

1,192

 

 

$

7.63

 

 

 

7.13

 

 

$

6,343

 

Vested and expected to vest — March 31, 2017

 

3,212

 

 

$

6.47

 

 

 

8.25

 

 

$

19,434

 

 

Total stock-based compensation expense related to the Company’s 2010 Equity Incentive Plan, 2014 Equity Incentive Plan and the 2014 Employee Stock Purchase Plan was as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Research and development

$

605

 

 

$

437

 

General and administrative

 

544

 

 

 

590

 

Total stock-based compensation

$

1,149

 

 

$

1,027

 

 

12


 

9. Net Loss per Share

Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.

Potentially dilutive securities that were not included in the diluted net loss per share calculations because they would be anti-dilutive were as follows (in thousands):

 

 

March 31,

 

 

2017

 

 

2016

 

Options to purchase common stock

 

3,212

 

 

 

2,445

 

Employee stock plan purchases

 

60

 

 

 

30

 

Total

 

3,272

 

 

 

2,475

 

 

 

10. Collaboration and Licensing Agreements

Incyte Collaboration and License Agreement

On January 27, 2017, the Company entered into a collaboration and license agreement with Incyte (the “Incyte Collaboration Agreement”). Under the terms of the Incyte Collaboration Agreement, the Company granted Incyte an exclusive, worldwide license to develop and commercialize its small molecule arginase inhibitors for hematology and oncology indications. The parties will collaborate on and co-fund the development of the licensed products, with Incyte bearing 70% and the Company bearing 30% of global development costs. The parties will share profits and losses in the United States, with 60% to Incyte and 40% to the Company. The Company will have the right to co-detail the licensed products in the United States, and Incyte will pay the Company tiered royalties ranging from the low to mid-double digits on net sales of licensed products outside the United States. The Company may opt out of its co-funding obligation, in which case the United States profit sharing will no longer be in effect, and Incyte will pay the Company tiered royalties ranging from the low to mid-double digits on net sales of licensed products both in the United States and outside the United States, and additional royalties to reimburse the Company for previously incurred development costs.

Under the Incyte Collaboration Agreement, the Company received an upfront payment of $45.0 million in February 2017. In March 2017, the Company achieved a development milestone of $12.0 million, which the Company received payment in May of 2017. The Company is also eligible to receive up to an additional $418.0 million in potential development, regulatory and sales milestones. Incyte and the Company will share in any future United States net profits and losses, with the Company bearing 40% and Incyte bearing 60%, respectively, and outside the United States the Company will be eligible to receive from Incyte tiered royalties, with rates in the low to mid-teens of sales.

The Incyte Collaboration Agreement also provides that the Company may choose to opt out of its co-funding obligations at any time. In this scenario, the potential development, regulatory and commercialization milestones from Incyte will be up to an additional $738.0 million. The Company would no longer be eligible to receive future United States profits and losses but would be eligible to receive tiered royalty payments on future global sales, including United States sales. In addition, if the Company opts out, the Company will receive an incremental 3% royalty on annual net sales in the United States of such licensed product until such incremental royalty equals 120% of previous development expenditures incurred by the Company.

The upfront payment of $45.0 million will be recognized over the estimated period of performance under the Incyte Collaboration Agreement, which approximates two years, ending January 2019. The deliverables under the Incyte Collaboration Agreement consist of intellectual property licenses and the performance of certain manufacturing and manufacturing technology transfer services. The Company considered the provisions of the revenue recognition multiple-element arrangement guidance and concluded that the delivered licenses do not have stand-alone value, and the rights conveyed to Incyte do not permit Incyte to perform all efforts necessary to use the Company’s technology to bring the compound through development and, upon regulatory approval, commercialization of the compound, without the associated manufacturing and technology transfer services. Accordingly, the Company combined these deliverables and allocated the upfront consideration of $45.0 million to the combined unit of accounting. In the first quarter of 2017, the Company earned a $ 12.0 million developmental milestone payment from Incyte, which is being recognized as revenue over the remaining period of performance for the combined unit of accounting.  

Net costs associated with co-development activities performed under the agreement are included in research and development expenses in the accompanying statements of operations, with any reimbursement of costs by Incyte reflected as a reduction of such expenses.

13


 

For the three months ended March 31, 2017, the Company recognized revenue from its collaboration with Incyte totaling $4.2 million related to amortization of the $45.0 million upfront fee and the $12.0 million milestone. The remaining balance of $52.8 million is included in deferred revenue at March 31, 2017. For the three months en ded March 31, 2017, net costs reimbursable by Incyte were $1.6 million, which was recorded as a reduction of research and development expenses in the statement of operations. As of March 31, 2017, the receivable due from Incyte was $13.6 million.

Symbioscience License Agreement

In December 2014, the Company entered into an exclusive license agreement with Mars, Inc., by and through its Mars Symbioscience division, or Symbioscience, under which the Company has been granted the exclusive, worldwide license to develop and commercialize Symbioscience’s portfolio of arginase inhibitors for use in human healthcare (“Symbioscience License Agreement”). Under the terms of the Symbioscience License Agreement, the Company paid Symbioscience an upfront license fee of $0.3 million, which was recorded in research and development expense in 2014. For the three months ended March 31, 2016, the Company made a milestone payment of $0.2 million which was recorded in research and development expenses in the statement of operations. There were no expenses related to its licensing arrangement with Mars Symbioscience recorded in the three months ended March 31, 2017.

The Company may make future payments of up to $23.6 million contingent upon attainment of various development and regulatory milestones and $95.0 million contingent upon attainment of various sales milestones. Additionally, the Company will pay royalties on sales of the licensed product, if such product sales are ever achieved. If the Company develops additional licensed products, after achieving regulatory approval of the first licensed product, the Company would owe additional regulatory milestone payments and additional royalty payments based on sales of such additional licensed products.

vTv License Agreement

In March 2015, the Company entered into a License and Research agreement with High Point Pharmaceuticals, LLC and TransTech Pharma LLC, or collectively TransTech, under which the Company obtained an exclusive, worldwide license to develop and commercialize TransTech’s hexokinase II inhibitors (“vTv License Agreement”).  The agreement was subsequently assigned by TransTech to its parent company, vTv Therapeutics LLC (“vTv”).  Under the terms of the vTv License Agreement, the Company paid an initial license fee of $0.6 million, which was recorded in research and development expense in 2015. There were no expenses recorded for the three months ended March 31, 2017 and 2016.

The Company may pay potential development and regulatory milestone payments totaling up to $30.5 million for the first licensed product. vTv is eligible for an additional $77.0 million in potential sales-based milestones, as well as royalty payments, at mid-single digit royalty rates, based on tiered sales of the first commercialized licensed product. If the Company develops additional licensed products, after achieving regulatory approval of the first licensed product, the Company would owe additional regulatory milestone payments and additional royalty payments based on sales of such additional licensed products. The Company will be responsible for the worldwide development and commercialization of the licensed products, at its cost.

 

 

14


 

Item 2.

  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and related notes included in Part I, Item 1 of this report.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — “Risk Factors,” and elsewhere in this report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Overview

We are a clinical-stage pharmaceutical company focused on discovering and developing novel small molecule oncology drugs directed against tumor and immune cell targets that control key metabolic pathways in the tumor microenvironment. Tumor metabolism and immuno-oncology (I-O) have emerged as promising new fields for cancer drug discovery, and recent clinical successes with therapeutic agents in each field have demonstrated the potential to create fundamentally new therapies for cancer patients. We are developing agents that take advantage of the unique metabolic requirements of tumor cells and cancer-fighting immune cells such as cytotoxic T-cells. Our lead product candidate, CB-839, is an internally discovered, first-in-class oral inhibitor of glutaminase, a critical enzyme in tumor cells. We are currently evaluating CB‑839 in multiple Phase 1/2 clinical trials in solid tumors. CB-839 administered as a single agent has resulted in clinical responses in renal cell cancer and acute myeloid leukemia and clinical benefit in several other tumor types. We are currently enrolling patients in a series of combination Phase 1/2 cohorts in specific solid tumor types, and are planning to begin Phase 2 trials in renal cell carcinoma, or RCC, and triple negative breast cancer, or TNBC, in 2017. Our second product candidate, CB‑1158, is a first-in-class oral inhibitor of arginase, an enzyme that depletes the amino acid arginine, a key metabolic nutrient for T‑cells, and is being co-developed with Incyte Corporation, or Incyte, for hematology and oncology indications. CB-1158 is currently being tested in a Phase 1 clinical trial in patients with solid tumors. We also have ongoing research efforts that are focused on discovering additional product candidates against novel tumor metabolism and immunology targets.

Our lead product candidate, CB-839, takes advantage of the pronounced dependency many cancers have on the nutrient glutamine for growth and survival. CB-839 inhibits glutaminase, an enzyme required by cancer cells to utilize glutamine effectively. In preclinical studies, CB-839 demonstrated broad antitumor activity in tumor cell lines, inhibited the growth of human tumors in animal models and was well tolerated in toxicity studies. CB-839 was also synergistic with several approved, standard of care, cancer therapeutics. We believe CB-839 has the potential to be an important new therapeutic agent with a novel mechanism of action for the treatment of a broad range of cancers, and is the only selective glutaminase inhibitor currently in clinical trials. We currently retain all commercial rights to CB-839 and have been granted a U.S. patent, which includes composition of matter coverage for CB-839 through 2032 .

CB-839 may also have the potential to work in combination with immuno-oncology therapeutics. Inhibition of glutaminase results in accumulation of glutamine, the substrate of glutaminase, in tumors. Glutamine, which is frequently depleted in the tumor microenvironment due to avid uptake by tumor cells, has been shown to be an important nutrient for T-cell proliferation. Administration of CB-839 to tumor-bearing animals substantially enhances the anti-tumor activity of checkpoint inhibitors, potentially by restoring the levels of glutamine in the tumor microenvironment and thereby enabling T-cells to proliferate. Checkpoint inhibitors, including the approved agents nivolumab (marketed as Opdivo) and pembrolizumab (marketed as Keytruda), are a class of immuno-oncology agents directed against programmed death protein-1 (PD-1) or programmed death ligand-1 (PD-L1) that promote the activation and tumor-killing properties of the patient’s own immune cells, such as cytotoxic T-cells. CB-839 could potentially have multiple mechanisms of action in the treatment of cancer first by starving the tumor cell, and second by facilitating the activation of T-cells in the nutrient-deprived tumor microenvironment.

15


 

Our second product candidate, CB-1158, is a potent and selective orally bioavailable inhibitor of the enzyme arginase that was disc overed at Calithera and is being co-developed with Incyte Corporation. Arginase depletes arginine, a nutrient that is critical for the activation and proliferation of the body’s cancer-fighting immune cells, such as cytotoxic T-cells and natural killer (NK )-cells. During normal activation of the immune system, arginase, which is expressed by suppressive myeloid immune cells, plays an important role in halting T-cell proliferation. But in many tumors, including lung, gastrointestinal, bladder, renal cancer a nd acute myeloid leukemia, arginase-expressing myeloid cells accumulate and maintain an immunosuppressive environment, blocking the ability of T-cells and NK-cells to kill cancer cells. We believe that inhibitors of arginase can promote an anti-tumor immun e response by restoring arginine levels, thereby allowing activation of the body’s own immune cells, including cytotoxic T-cells and NK-cells.

Recent Developments

CB-839

Our lead product candidate, CB-839 is a potent, selective, reversible and orally bioavailable inhibitor of human glutaminase. CB-839 binds to a unique site on glutaminase that is distinct from the site that binds glutamine, thereby reducing the potential for undesirable side effects due to inhibition of other enzymes and receptors that bind glutamine. CB-839 takes advantage of the pronounced dependency many cancers have on the nutrient glutamine for growth and survival. In preclinical studies, CB-839 demonstrated broad antitumor activity in cell lines, inhibited the growth of human tumors in animal models, and was well tolerated in animals at doses above those shown to inhibit tumor growth. CB-839 was also synergistic with several approved cancer therapeutics that are part of the current standard of care.

In 2016, RCC was diagnosed in approximately 62,000 people in the United States, according to the National Cancer Institute. We evaluated CB-839 as a monotherapy in a RCC cohort in the dose expansion stage of our solid tumor Phase 1 clinical trial CX-839-001. As of December 31, 2016, 20 efficacy-evaluable RCC patients were treated with single agent CB-839 on the BID (twice-daily) dosing schedule. One patient achieved a partial response with a substantial decrease in target lesions (32%), including a dramatic improvement in the patient’s extensive lymphadenopathy. A total of 10 patients (50%) showed stable disease or better.

We are also evaluating CB-839 in expansion cohorts in combination with everolimus and cabozantinib. In November 2016, we presented data on 15 evaluable RCC patients, including 12 clear cell patients, and three papillary patients. Ninety-three percent (93%) of these patients had disease control (response or stable disease); one patient had a partial response, one patient had progressive disease, and 13 patients had stable disease. The median progression free survival was 8.5 months and for the majority of patients, their time on therapy is longer than their time on treatment in their prior therapy. In the clear cell patient population the disease control rate was 100% and eight patients remain on study. Patients enrolled in the trial had advanced or metastatic disease and had received a median of two prior treatments, which included tyrosine kinase inhibitors, mTOR inhibitors, and checkpoint inhibitors. Patients were administered CB-839 in oral doses that ranged from 400-800 mg twice a day in combination with a fixed oral dose of everolimus at 10 mg once a day. The addition of CB-839 to full-dose everolimus has been well tolerated, with a similar safety profile to the known profile of everolimus alone. Grade 3 events include two events of hyperglycemia and one event each of diarrhea, anemia and fatigue. We plan to present additional data from this trial in the second half of 2017.

We continue to enroll patients in this combination cohort, as well as a cohort of patients dosed with CB-839 in combination with cabozantinib. A randomized Phase 2 trial of CB-839 in combination with everolimus is planned, and expected to initiate in the second half of 2017.

In August 2016, we initiated CX-839-004, a Phase 1/2 clinical trial of CB-839 in combination with the PD-1 inhibitor nivolumab which in patients with RCC, melanoma, and non-small cell lung cancer. The Phase 1/2 study will assess the safety, pharmacokinetics and pharmacodynamics of CB-839 and nivolumab. The study will enroll patients who are either naïve to checkpoint inhibitors, had prior nivolumab therapy, or were recently treated with nivolumab without tumor response. Patients may be progressing on nivolumab or failing to respond and will receive CB-839 as an “add-on” therapy. In December 2016, we announced a clinical trial collaboration to evaluate Bristol-Myers Squibb’s Opdivo in combination with CB-839 in patients with clear cell RCC. We expect to present data from this trial in the second half of 2017.

In December 2016, we presented data on 28 TNBC patients treated with doses of CB-839 of 400, 600 or 800 mg BID in combination with 80 mg/m 2 IV paclitaxel, weekly, three weeks out of four; 23 were evaluable for response. The majority of patients had received at least three prior lines of therapy, with 43% of patients treated with five or more prior therapies in the advanced/metastatic setting. Most patients had received prior taxane therapy in either the neo-adjuvant or metastatic setting. Among evaluable patients treated with CB-839 doses of at least 600 mg BID (n=16), there are 5 partial responses (31%) and disease control in 11 patients (69%). In addition, the combination overcame resistance to paclitaxel in heavily pretreated TNBC patients. There was a 38%

16


 

response rate and 50% disease control rate in patients who received prior taxanes in the metastatic setting. There was a 50% response rate among taxane-refractory African American patients. Four of five patients were African American . This is consistent with higher glutamine utilization observed in tumors from this population. CB-839 was well tolerated in combination with paclitaxel. We plan to present additional data from this trial in the second half of 2017. We also plan to initiat e a Phase 2 trial in TNBC in the second half of 2017. This study is currently expected to enroll single arm combination therapy cohorts of African American and non-African American patients in both the early stage setting – where patients have no prior tax anes treatment – as well as the late stage setting.

In 2017, an estimated 135,000 new cases of colorectal cancer, or CRC, will be diagnosed in the United States according to the American Cancer Society. Researchers report that PIK3CA mutation is present in 10% to 20% of all cases of CRC. An academic research group at Case Western demonstrated that single agent CB-839 inhibits the growth of CRCs with PIK3CA mutations in immunocompromised mice, but CRC tumors with a normal PIK3CA gene were not inhibited. Remarkably, the combination of CB-839 with 5-florouracil induced complete and long-lasting tumor regressions in animals bearing PIK3CA mutant CRC tumors, but not tumors with normal PIK3CA, suggesting that this combinational therapy may be a unique and effective approach in the clinic. In the third quarter of 2016, an investigator-sponsored clinical trial was initiated by Drs. Jennifer Eads, Alok Khorana, and Neal Meropol at the Case Western Comprehensive Cancer Center. Enrollment in this study is ongoing.

CB-1158

Our second product candidate, CB-1158, is a first-in-class immuno-oncology metabolic checkpoint inhibitor targeting arginase, an immunosuppressive enzyme in myeloid-derived suppressor cells, or MDSCs, responsible for T-cell suppression. Significant infiltration by arginase-expressing myeloid cells has been observed in many solid tumor types including lung, colorectal esophageal, bladder, head and neck, kidney cancer, and other tumor types. We have confirmed that arginase-expressing MDSCs are found by immunohistochemistry in a wide range of tumor types including non-small cell lung (both adenocarcinoma and squamous types), gastrointestinal and bladder cancers.

CB-1158 entered clinical trials in September 2016, and is currently being tested in a Phase 1 clinical trial in patients with solid tumors. Three patients in the first cohort were treated with 50 mg of CB-1158 twice daily. This dose was well-tolerated and was pharmacologically active, resulting in sustained elevation of arginine in the plasma of all three patients. Pharmacodynamic data on the first three patients was presented at the Society for Immunotherapy of Cancer (SITC) meeting in November 2016. The trial is continuing to enroll patients in the dose escalation phase of the study, to be followed by combination studies with a PD-1 antibody. Data from the Phase 1 trial has been accepted for oral presentation at the 2017 American Society of Clinical Oncology (ASCO) annual meeting in June.  Clinical results to be presented include monotherapy data from our Phase 1 trial in solid tumors.  

Global Collaboration and License Agreement with Incyte Corporation

We have identified CB-1158 and a portfolio of other small molecule arginase inhibitors that show high potency and oral bioavailability. In January 2017, we announced that we entered into a global collaboration and license agreement for the research, development and commercialization of our small molecule arginase inhibitor CB-1158 in hematology and oncology with Incyte Corporation, or the Incyte Collaboration Agreement. We will collaborate with Incyte on and co-fund the development of CB-1158 for oncology and hematology indications. Incyte will bear 70% and we will bear 30% of global development costs, unless we opt out of development co-funding. We will have the right to conduct a portion of clinical development studies under the collaboration, including combination studies of a licensed product with any other of our proprietary compounds. If we do not opt out of development co-funding, the parties will share profits and losses in the United States, with 60% to Incyte and 40% to us, and we have the right to co-detail licensed products in the United States. We retain the rights to certain arginase inhibitors for specific indications outside of hematology and oncology. In the first quarter of 2017 Incyte paid us an upfront license fee of $45.0 million and in March 2017, we achieved a development milestone of $12.0 million for which we received payment in May of 2017. Incyte may pay potential development, regulatory and sales milestone payments up to an additional $418.0 million if the profit share is in effect, or an additional $738.0 million if the profit share terminates.  Please see Note 10 to our condensed financial statements for further information regarding the Incyte Collaboration Agreement.

Stock Purchase Agreement with Incyte Corporation

In January 2017, we also entered into a stock purchase agreement with Incyte, pursuant to which Incyte purchased 1,720,430 shares of our common stock at a price of $4.65 per share, resulting in gross proceeds of $8.0 million and net proceeds of $7.9 million, after deducting offering expenses.

17


 

Critical Accounting Policies and Estimates

Revenue Recognition

We recognize revenue from collaboration, license or research arrangements when persuasive evidence of an arrangement exists; transfer of technology has been completed, services are performed or products have been delivered; the fee is fixed or determinable; and collection is reasonably assured. For arrangements with multiple deliverables, we evaluate each deliverable to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has stand-alone value to the customer. If we determine that the deliverables do not have stand-alone value then all such deliverables are combined into one or more units of accounting, with consideration given to whether one deliverable is considered the predominant deliverable under the arrangement.

The selling price used for each unit of accounting will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available or estimated selling price if neither vendor-specific nor third-party evidence is available. Management may be required to exercise considerable judgment in determining whether a deliverable is a separate unit of accounting and in estimating the selling prices of identified units of accounting for new agreements. Where multiple deliverables are combined as a single unit of accounting, revenues are recognized based on the performance requirements of the related agreement.

For a combined unit of accounting, non-refundable upfront payments are recognized in a manner consistent with the final deliverable, which has generally been ratably over the estimated period of continued involvement. We periodically review the basis for our estimates, and we may change the estimates if circumstances change. These changes can significantly change the timing of revenue recognized. Amounts received in advance of performance are recorded as deferred revenue. Upfront payments are classified as collaboration revenue in our statements of operations.

We have not made a policy election to use the milestone method of accounting. Instead, we will account for milestone payments over the remaining period of performance for the combined unit of account. Therefore, the development and commercial milestones, if and when achieved, will be recorded as revenue over the period of performance for the combined unit of account. If there are no remaining performance obligations, milestone payments will be recognized when the event is achieved and the applicable revenue criteria are met.

For a discussion of our other significant accounting policies, please see our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Except for our revenue recognition policy, there have been no material changes in our critical accounting policies during the three months ended March 31, 2017, as compared to those disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Form 10-K dated December 31, 2016, filed with the SEC.

Financial Overview

Collaboration Revenue

Collaboration revenue represents the portion of deferred revenue recognized from a $45.0 million upfront fee and $12.0 million milestone achieved from the Incyte Collaboration Agreement. The upfront payment of $45.0 million is being recognized over the estimated period of performance under the Incyte Collaboration Agreement, which approximates two years, ending January 2019. In the first quarter of 2017, the Company earned a $ 12.0 million developmental milestone payment from Incyte, which is being recognized as revenue over the remaining period of performance for the combined unit of accounting. We expect our collaboration revenue to increase over the next year, reflecting the recognition of deferred revenue related to the Incyte Collaboration Agreement.

Research and Development Expenses

 

Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following:

 

employee- related expenses, which include salaries, benefits and stock-based compensation;

 

expenses incurred under agreements with clinical trial sites that conduct research and development activities on our behalf;

 

laboratory and vendor expenses related to the execution of preclinical studies and clinical trials;

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contract manufacturing expenses, primarily for the production of clinical supplies;

 

facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies; and

 

license fees and milestone payments related to our licensing agreements.

 

The largest component of our total operating expenses has historically been our investment in research and development activities including the clinical development of our product candidates. We allocate to research and development expenses the salaries, benefits, stock-based compensation expense, and indirect costs of our clinical and preclinical programs on a program-specific basis, and we include these costs in the program-specific expenses. The following table shows our research and development expenses for the three months ended March 31, 2017 and 2016:

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

 

(in thousands)

 

Development:

 

 

 

 

 

 

 

CB-839 (Glutaminase inhibitor)

$

3,626

 

 

$

2,545

 

CB-1158 (Arginase inhibitor)

 

1,424

 

 

 

3,508

 

Total development

 

5,050

 

 

 

6,053

 

Preclinical and research:

 

 

 

 

 

 

 

Arginase inhibitors

 

 

 

 

722

 

Other preclinical and research

 

1,590

 

 

 

291

 

Total preclinical and research

 

1,590

 

 

 

1,013

 

Total Research and Development

$

6,640

 

 

$

7,066

 

 

We expect our research and development expenses will increase during the next few years as we advance our product candidates into and through clinical trials, and pursue regulatory approval of our product candidates, which will require a significant investment in contract manufacturing and inventory build-up related costs.

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for our product candidates. The probability of success of our product candidates may be affected by numerous factors, including clinical data, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist of personnel costs, allocated expenses and other expenses for outside professional services, including legal, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. Allocated expenses consist of facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies. We have incurred and expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, particularly after we cease to be an “emerging growth company.”

 

 

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Results of Operations

 

Comparison of the Three Months Ended March 31, 2017 and 2016

 

 

 

Three Months

 

 

 

 

 

 

 

 

 

 

 

Ended March 31,

 

 

Change

 

 

 

2017

 

 

2016

 

 

$

 

 

%

 

 

 

(in thousands, except percentages)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue

 

$

4,192

 

 

$

 

 

$

4,192

 

 

*

 

Total revenue

 

 

4,192

 

 

 

 

 

 

4,192

 

 

*

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

6,640

 

 

 

7,066

 

 

 

(426

)

 

 

-6

%

General and administrative

 

 

3,308

 

 

 

2,591

 

 

 

717

 

 

 

28

%

Total operating expenses

 

 

9,948

 

 

 

9,657

 

 

 

291

 

 

 

3

%

Loss from operations

 

 

(5,756

)

 

 

(9,657

)

 

 

3,901

 

 

 

-40

%

Interest income, net

 

 

169

 

 

 

75

 

 

 

94

 

 

 

125

%

Net loss

 

$

(5,587

)

 

$

(9,582

)

 

$

3,995

 

 

 

-42

%

*    Percentage not meaningful.

Collaboration Revenue.     Collaboration revenue increased $4.2 million for the three months ended March 31, 2017 and represents the portion of deferred revenue from the $45.0 million upfront fee and $12.0 million milestone achieved in the first quarter of 2017 from the Incyte Collaboration Agreement recognized ratably over the estimated performance period that is consistent with the term of our obligations under the agreement.

Research and Development.     Research and development expenses decreased $0.4 million, or 6%, from $7.1 million for the three months ended March 31, 2016 to $6.6 million for the three months ended March 31, 2017. The decrease of $0.4 million was primarily due to a decrease of $2.8 million from the CB-1158 program, including $1.6 million from Incyte’s co-funding of development costs pursuant to the Incyte Collaboration Agreement, partially offset by an increase of $1.0 million in the CB-839 program, including for Phase 2 start-up activities, as well an increase of $1.3 million from investment in our early stage research programs .

General and Administrative.     General and administrative expenses increased $0.7 million, or 28%, from $2.6 million for the three months ended March 31, 2016 to $3.3 million for the three months ended March 31, 2017. The increase was due to an increase of $0.5 million in professional services primarily related to legal expenses in connection with the Incyte Collaboration Agreement and an increase of $0.3 million related to non-recurring expenses for the sublease of our office and laboratory space in March 2017 .

Interest Income.     Interest income increased $94,000, from $75,000 for the three months ended March 31, 2016 to $169,000 for the three months ended March 31, 2017. The increase of $94,000 was primarily due to higher interest income generated from our higher cash equivalents and investment balances compared to the same period in the prior year.

Liquidity and Capital Resources

As of March 31, 2017, we had cash, cash equivalents and investments of $207.1 million. Our operations have been financed by net proceeds from the sale of shares of our capital stock and revenue from the Incyte Collaboration Agreement.

In November 2015, we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission which permits the offering, issuance and sale by us of up to a maximum aggregate offering price of $150.0 million of our common stock. During the three months ended March 31, 2017, we sold an aggregate of:

 

7,854,500 shares of common stock pursuant to an underwriting agreement with Leerink Partners LLC as representative of the several underwriters at a public offering price of $10.25 per share for gross proceeds of $80.5 million, resulting in net proceeds of $75.4 million after deducting underwriting fees and offering expenses. As of March 31, 2017, $0.3 million of offering expenses are included in accrued liabilities on the balance sheet;

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4,188,679 shares of common stock pursuant to our at-the-market, or ATM, offering program with Cowen and Company LLC, at an average price of approximately $9.06 per share for gross proceeds of $38.0 million, resulting in net proceeds of $36.9 million after deducting underwriting fees and offering expenses; and

 

1, 720 ,430 shares of common stock pursuant to our stock purchase agreement with Incyte, at a price of $4.65 per share for gross proceeds of $8.0 million, resulting in net proceeds of $7.9 million after deducting offering expenses.

As of March 31, 2017, approximately $11.5 million of our common stock remained available for sale pursuant to the shelf registration statement. In addition, as of March 31, 2017, we had sold all available shares of common stock under our ATM program.

Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

We believe that our existing cash, cash equivalents and investments as of March 31, 2017 will be sufficient for us to meet our current operating plan through 2020. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. In order to complete the process of obtaining regulatory approval for our product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

 

the timing and costs of our planned clinical trials for our product candidates;

 

the timing and costs of our planned preclinical studies of our product candidates;

 

our success in establishing and scaling commercial manufacturing capabilities;

 

the number and characteristics of product candidates that we pursue;

 

the outcome, timing and costs of seeking regulatory approvals;

 

subject to receipt of regulatory approval, revenue received from commercial sales of our product candidates;

 

the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish;

 

the amount and timing of any payments we may be required to make in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or patent applications or other intellectual property rights; and

 

the extent to which we in-license or acquire other products and technologies.

We plan to continue to fund our operations and capital funding needs through reimbursement of expenses under our collaboration agreement with Incyte, and through equity and/or debt financing. We may also consider further collaborations or selectively partnering for clinical development and commercialization. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. If we are not able to secure adequate additional funding we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could harm our business, results of operations and future prospects.

 

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Cash Flows

The following table summarizes our cash flows for the periods indicated:

 

 

 

Three Months

 

 

 

Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Cash provided by (used in) operating activities

 

$

35,251

 

 

$

(7,606

)

Cash provided by (used in) investing activities

 

$

(77,359

)

 

$

9,424

 

Cash provided by financing activities

 

$

120,579

 

 

$

4,243

 

 

 

Cash Flows from Operating Activities

Cash provided by operating activities for the three months ended March 31, 2017 was $35.3 million. Our net loss of $5.6 million was offset in part by non-cash charges of $1.1 million of stock-based compensation and $0.2 million for depreciation and amortization. The change in operating assets and liabilities of $39.5 million was primarily related to a $52.8 million increase in deferred revenue and a $13.6 million increase in the receivable related to the Incyte Collaboration Agreement, and $0.3 million increase due to the timing of payments for our research and development activities.

Cash used in operating activities for the three months ended March 31, 2016 was $7.6 million. Our net loss of $9.6 million was offset in part by non-cash charges of $1.0 million of stock-based compensation and $0.3 million for depreciation and amortization. The change in operating assets and liabilities of $0.7 million was primarily due to the timing of payments for our research and development activities.   

Cash Flows from Investing Activities  

Cash used in investing activities was $77.4 million for the three months ended March 31, 2017 and was related to the purchases of investments of $94.0 million and the increase in restricted cash of $0.4 million, offset by the sale or maturity of investments of $17.1 million and purchase of property and equipment of $50,000.

Cash provided by investing activities was $9.4 million for the three months ended March 31, 2016 and was related to the sale or maturity of investments of $22.1 million, offset by purchase of investments of $12.5 million and purchase of property and equipment of $0.2 million.

Cash Flows from Financing Activities  

Cash provided by financing activities was $120.6 million for the three months ended March 31, 2017 and was related to $75.7 million in net proceeds from the sale and issuance of common stock related to our public offering excluding $0.3 million of offering expenses included in accrued liabilities on the balance sheet as of March 31, 2017 , $7.9 million in net proceeds from the issuance of common stock under our stock purchase agreement with Incyte, $36.9 million in net proceeds from the issuance of common stock through our ATM program, and $74,000 related to the issuance of common stock upon the exercise of stock options.

Cash provided by financing activities was $4.2 million for the three months ended March 31, 2016 and was primarily related to net proceeds from the issuance of common stock through our ATM program.  

Contractual Obligations and Other Commitments  

There have been no material changes to the contractual obligations during the three months ended March 31, 2017, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

Off-Balance Sheet Arrangements

During 2016 and the three months ended March 31, 2017, we did not have any off balance sheet arrangements.

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Recent Accounting Pronouncements

Please refer to Note 1 to our unaudited condensed financial statements appearing under Part I, Item 1 for a discussion of new accounting standards updates that may impact us.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. Our investment policy allows us to maintain a portfolio of cash equivalents and investments in a variety of high credit quality securities issued by the U.S. government, U.S. government-sponsored agencies and highly rated banks and corporations, subject to certain concentration limits. Our investment policy prohibits us from holding auction rate securities or derivative financial instruments. As of March 31, 2017, we had cash, cash equivalents and investments of $207.1 million. A portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase. However, we believe that our exposure to interest rate risk is not significant as the majority of our investments are short-term in duration and a 1% change in interest rates would not have a significant impact on the total value of our portfolio. We actively monitor changes in interest rates. We had no outstanding debt as of March 31, 2017.  

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures .

As of March 31, 2017, management, with the participation of our President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer), performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer to allow timely decisions regarding required disclosures.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our President and Chief Executive Officer concluded that, as of March 31, 2017, the design and operation of our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting .

There were no changes in our internal control over financial reporting during the three months ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

23


 

PART II. – OTH ER INFORMATION

 

Item 1. Legal Proceedings

From time to time, we may become involved in legal proceedings relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows.

Item 1A. Risk Factors

Our business involves significant risks, some of which are described below. You should carefully consider the following risk factors, in addition to the other information contained in this report on Form 10-Q, including our financial statements and related notes and the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The occurrence of any of the events or developments described in the following risk factors and the risks described elsewhere in this report could harm our business, financial condition, results of operations, cash flows, the trading price of our common stock and our growth prospects. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. This report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report. The risks relating to our business set forth in our Annual Report on Form 10-K, filed with the SEC, are set forth below and are unchanged substantively as of March 31, 2017, except for those risks designated by an asterisk (*).

Risks Related to Our Financial Position and Need For Additional Capital

We have incurred significant operating losses since our inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future. We may never achieve or maintain profitability.*

Since our inception, we have incurred significant operating losses. Our net loss was $38.0 million and $5.6 million for year ended December 31, 2016 and the three months ended March 31, 2017, respectively. As of March 31, 2017, we had an accumulated deficit of $128.1 million. To date, we have financed our operations primarily through sales of our capital stock and payments from the Incyte Collaboration Agreement. We have devoted substantially all of our financial resources and efforts to research and development. We expect that it will be many years, if ever, before we receive regulatory approval and have a product candidate ready for commercialization. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially if and as we:

 

advance further into clinical trials for our existing clinical product candidates, CB-839 and CB-1158;

 

continue the preclinical development of our research programs and advance candidates into clinical trials;

 

identify additional product candidates and advance them into preclinical development;

 

pursue regulatory approval of product candidates;

 

seek marketing approvals for our product candidates that successfully complete clinical trials;

 

establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain marketing approval;

 

maintain, expand and protect our intellectual property portfolio;

 

hire additional clinical, regulatory and scientific personnel;

 

add operational, financial and management information systems and personnel, including personnel to support product development;

 

acquire or in-license other product candidates and technologies; and

 

operate as a public company.

We have never generated any revenue from product sales and may never be profitable. To become and remain profitable, we and our collaborators must develop and eventually commercialize one or more products with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those product candidates for which we may obtain marketing approval, and satisfying any post-marketing requirements. We may never succeed in these activities and, even if we do, may never generate revenue that is significant or large enough to achieve profitability. Our failure to become and remain profitable would decrease the value of the company and could impair our ability to raise capital, maintain our

24


 

research and development efforts, expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We will need substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue and initiate clinical trials of and seek marketing approval for our product candidates, specifically CB-839 and CB-1158, and as we become obligated to make milestone payments pursuant to our outstanding license agreements. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution of the approved product.

Our future capital requirements will depend on many factors, including:

 

the scope, progress, results and costs of drug discovery, clinical development, laboratory testing and clinical trials for our product candidates, in particular CB-839 and CB-1158;

 

the costs, timing and outcome of any regulatory review of our product candidates, CB-839 and CB-1158;

 

the cost of any other product programs we pursue;

 

the costs and timing of commercialization activities, including manufacturing, marketing, sales and distribution, for any product candidates that receive marketing approval;

 

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

 

achieving the milestones set forth in the Incyte Collaboration Agreement;

 

our ability to establish and maintain collaborations on favorable terms, if at all; and

 

the extent to which we acquire or in-license other product candidates and technologies.

Identifying potential product candidates and conducting preclinical studies and clinical trials are time consuming, expensive and uncertain processes that take years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales for any of our current or future product candidates. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenue, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all.

We do not have any material committed external source of funds or other support for our development efforts other than the Incyte Collaboration Agreement for the development and commercialization of small molecule arginase inhibitors in hematology and oncology indications, including CB-1158, which agreement is terminable by Incyte for convenience or following our uncured breach. If Incyte terminates our collaboration agreement, we would need to obtain substantial additional sources of funding to develop CB-1158 as currently contemplated. If such additional funding is not available on favorable terms or at all, we may need to delay or reduce the scope of our CB-1158 development program or dedicate resources allocated to other programs to fund CB-1158. We may also need to grant rights in the United States, as well as outside the United States, to CB-1158 to one or more partners.

Accordingly, we will need substantial additional funding in connection with our continuing operations and to achieve our goals. We expect that our existing cash, cash equivalents, and investments will be sufficient to enable us to meet our current operating plan for at least the next 12 months. However, our existing cash, cash equivalents and investments may prove to be insufficient for these activities. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional financing due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our operating plans.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity and debt financings, as well as entering into new collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds, other than our collaborations, which are limited in scope and duration. To the

25


 

extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, and may be secured by all or a portion of our assets. If we raise funds by entering into new collaborations, strategic alliances or licensing arrangements in the future with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we ar e unable to raise additional funds through equity or debt financings or through collaborations, strategic alliances or licensing arrangements when needed, we may be required to delay, limit, reduce or terminate our product development or future commerciali zation efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.*

We were founded in March 2010 and our operations to date have been limited to organizing and staffing our company, business planning, raising capital, developing our technology, identifying potential product candidates, undertaking preclinical studies and commencing Phase 1 clinical trials of our product candidate. CB-839 and CB-1158 are currently being evaluated in Phase 1/2 and Phase 1 clinical trials, respectively. All of our other programs are in research and preclinical development. We have not yet demonstrated our ability to successfully complete any clinical trials, including large-scale, pivotal clinical trials required for regulatory approval of our product candidates, obtain marketing approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes many years to develop one new product from the time it is discovered to when it is commercially available. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history or if we had product candidates in advanced clinical trials.

In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors that may alter or delay our plans. We will need to transition from a company with a research focus to a company capable of supporting development activities and, if a product candidate is approved, a company with commercial activities. We may not be successful in any step in such a transition.

Risks Related to Drug Discovery, Development and Commercialization

Our approach to the discovery and development of product candidates that target tumor metabolism and tumor immunology is unproven and may never lead to marketable products.

Our scientific approach focuses on using our understanding of cellular metabolic pathways and the role of glutaminase and hexokinase in these pathways, as well as the role of arginase in the anti-tumor immune response, to identify molecules that are potentially promising as therapies for cancer indications. Any product candidates we develop may not effectively modulate metabolic or immunology pathways. The scientific evidence to support the feasibility of developing product candidates based on inhibiting tumor metabolism or impacting the anti-tumor immune response are both preliminary and limited. Although preclinical studies suggest that inhibiting glutaminase and hexokinase can suppress the growth of certain cancer cells, to date no company has translated this mechanism into a drug that has received marketing approval. Even if we are able to develop a product candidate in preclinical studies, we may not succeed in demonstrating the safety and efficacy of the product candidate in human clinical trials. Our expertise in cellular metabolic pathways, the role of glutaminase and hexokinase in these pathways, and the role of arginase in the anti-tumor immune response may not result in the discovery and development of commercially viable products to treat cancer.

We are very early in our development efforts, which may not be successful.*

We have invested a significant portion of our efforts and financial resources in the identification of our most advanced product candidates, CB-839 and CB-1158, which are being evaluated in Phase 1/2 and Phase 1 clinical trials, respectively. We have entered into the Incyte Collaboration Agreement for the development and commercialization of CB-1158. Pursuant to our agreement, we collaborate on and co-fund the development of CB-1158 for hematology and oncology indications, with Incyte bearing 70% and Calithera bearing 30% of global development costs.  All of our other programs are in research and preclinical development. It is also too early in our development efforts to determine whether our product candidates will demonstrate single-agent activity or will be developed for use in combination with other approved therapies, or both. As a result, the timing and costs of the regulatory paths we will follow and marketing approvals remain uncertain. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of CB-839 and CB-1158. The success of CB-839, CB-1158 and any other product candidates we may develop will depend on many factors, including the following:

 

successful enrollment in, and completion of, clinical trials;

26


 

 

demonstrating safety and efficacy;

 

receipt of marketing approvals from applicable regulatory authorities;

 

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

 

obtaining and maintaining patent and trade secret protection and non-patent exclusivity for our product candidates;

 

launching commercial sales of the product candidates, if and when approved, whether alone or selectively in collaboration with others;

 

our ability to successfully develop and commercialize small molecule arginase inhibitors, including CB-1158 with Incyte;

 

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

 

effectively competing with other therapies;

 

a continued acceptable safety profile of the products following approval; and

 

enforcing and defending intellectual property rights and claims.

If we do not accomplish one or more of these goals in a timely manner, or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would harm our business.

We may not be successful in our efforts to identify or discover potential product candidates.

Our drug discovery efforts may not be successful in identifying compounds that are useful in treating cancer. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons. In particular, our research methodology used may not be successful in identifying compounds with sufficient potency or bioavailability to be potential product candidates. In addition, our potential product candidates may, on further study, be shown to have harmful side effects or other negative characteristics.

Research programs to identify new product candidates require substantial technical, financial and human resources. We may choose to focus our efforts and resources on potential product candidates that ultimately prove to be unsuccessful. If we are unable to identify suitable compounds for preclinical and clinical development, we will not be able to generate product revenue, which would harm our financial position and adversely impact our stock price.

If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must complete preclinical development and in the case of CB-1158, together with Incyte, then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials could occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a particular clinical trial do not necessarily predict final results of that trial.

Moreover, preclinical and clinical data are often susceptible to multiple interpretations and analyses. Many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.

We may experience numerous unforeseen events during, or as a result of, preclinical testing or clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including that:

 

regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

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clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

 

the number of patients required for clinical trials of our product candidates may be larger than we anticipate; enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;

 

our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

 

the cost of clinical trials of our product candidates may be greater than we anticipate; and

 

the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

 

be delayed in obtaining marketing approval for our product candidates;

 

not obtain marketing approval at all;

 

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

 

be subject to additional post-marketing testing requirements; or

 

have the product removed from the market after obtaining marketing approval.

Product development costs will also increase if we experience delays in testing or in receiving marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates, could allow our competitors to bring products to market before we do, and could impair our ability to successfully commercialize our product candidates, any of which may harm our business and results of operations.

If we experience delays or difficulties in enrolling patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to identify and enroll a sufficient number of eligible patients to participate in these trials as required by the U.S. Food and Drug Administration, or FDA, or analogous regulatory authorities outside the United States. In addition, some of our competitors may have ongoing clinical trials for product candidates that would treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. Patient enrollment is also affected by other factors, including:

 

severity of the disease under investigation;

 

availability and efficacy of approved medications for the disease under investigation;

 

eligibility criteria for the trial in question;

 

perceived risks and benefits of the product candidate under study;

 

efforts to facilitate timely enrollment in clinical trials;

 

patient referral practices of physicians;

 

the ability to monitor patients adequately during and after treatment; and

 

proximity and availability of clinical trial sites for prospective patients.

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Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or may require us to abandon one or mo re clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

If serious adverse effects or unexpected characteristics of our product candidates are identified during development, we may need to abandon or limit our development of some or all of our product candidates.*

We are currently evaluating CB-839 and CB-1158 in Phase 1/2 and Phase 1 clinical trials, respectively. All our other programs are in research and preclinical development and their risk of failure is high. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive marketing approval. Adverse events or undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, any current or future collaborators, an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of one or more of our product candidates and could result in a more restrictive label, or the delay or denial of marketing approval by the FDA or comparable foreign regulatory authorities. If adverse effects were to arise in patients being treated with any of our product candidates, it could require us to halt, delay or interrupt clinical trials of such product candidate or adversely affect our ability to obtain requisite approvals to advance the development and commercialization of such product candidate. If our product candidates are associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many agents that initially showed promise in early stage testing for treating cancer or other diseases have later been found to cause side effects that prevented further development of the agent.

We are in early clinical trials with CB-839 and we have seen several adverse events deemed possibly or probably related to CB-839. As of November 2015, a variety of adverse events, or AEs, have been reported. In the CX839-001 study, treatment-emergent Grade ≥ 3 AEs occurring in >5% of patients included increases in liver enzymes aspartate aminotransferase (AST) and alanine aminotransferase (ALT). With a change to twice daily dosing with food, only one out of the 66 patients showed a Grade 3 liver enzyme increase. We have treated an insufficient number of patients to fully assess the safety of CB-839 and, as our trials progress, we may experience more frequent or more severe adverse events. Our ongoing and planned trials for CB-839 and our and Incyte’s ongoing and planned trials for CB-1158 may fail due to safety issues, and we may need to abandon development of CB-839 or CB-1158. Our other research programs may fail due to preclinical or clinical safety issues, causing us to abandon or delay the development of a product candidate from these programs.

Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials.

The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials do not necessarily predict success in future clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We may experience delays in designing and executing clinical trials to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we, or our current and future collaborators, believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates.

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. If we fail to receive positive results in clinical trials of our product candidates, the development timeline and regulatory approval and commercialization prospects for our most advanced product candidates, and, correspondingly, our business and financial prospects would be negatively impacted.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

We have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable

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products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangement s, including our agreement with Incyte, in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. In addition, under our agreement with Incyte, Incyte has the right to c ommercialize CB-1158 in hematology and oncology indications.  If Incyte does not successfully commercialize CB-1158, we may be unable to realize the full value from our collaboration with Incyte.

Even if any of our product candidates receives marketing approval, we or others may later discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, which could compromise our ability, or that of any future collaborators, to market the product.

Clinical trials of our product candidates are conducted in carefully defined sets of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials, or those of any future collaborator, may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of a product candidate, we, or others, discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, any of the following adverse events could occur:

 

regulatory authorities may withdraw their approval of the product or seize the product;

 

we, or any future collaborators, may be required to recall the product, change the way the product is administered or conduct additional clinical trials;

 

additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;

 

we may be subject to fines, injunctions or the imposition of civil or criminal penalties;

 

regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;

 

we, or any future collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;

 

we, or any future collaborators, could be sued and held liable for harm caused to patients;

 

the product may become less competitive; and

 

our reputation may suffer.

Even if any of our product candidates receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, third party payors and others in the medical community necessary for commercial success.

If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, third party payors and others in the medical community for us to achieve commercial success. For example, current cancer treatments like chemotherapy and radiation therapy for certain diseases and conditions are well established in the medical community, and doctors may continue to rely on these treatments. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenue to become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

 

the efficacy and potential advantages compared to alternative treatments;

 

our ability to offer any approved products for sale at competitive prices;

 

convenience and ease of administration compared to alternative treatments;

 

the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

the strength of marketing and distribution support;

 

sufficient third-party coverage or reimbursement; and

 

the prevalence and severity of any side effects.

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If, in the future, we are unable to establish sales and marketing capabilities or to selectively enter into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.

We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to other third parties. For our small molecule arginase inhibitors in hematology and oncology indications, including CB-1158, unless we establish our own sales and marketing capabilities, we will be significantly dependent on Incyte’s sales and marketing infrastructure to effectively commercialize these products. In the future, we may choose to build a focused sales and marketing infrastructure to sell some of our product candidates if and when they are approved.

There are risks involved both with establishing our own sales and marketing capabilities and with entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our product candidates on our own include:

 

our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

 

the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future products; and

 

unforeseen costs and expenses associated with creating an independent sales and marketing organization.

If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the profitability of these product revenue to us may be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

The development and commercialization of new drug products is highly competitive. Research and discoveries by others may result in breakthroughs which may render our products obsolete even before they generate any revenue. We face competition with respect to our current product candidates, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the cancer indications for which we are focusing our product development efforts. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our 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.

We are developing our product candidates for the treatment of various cancers. There are a variety of available drug therapies marketed for cancer. In many cases, these drugs are administered in combination to enhance efficacy. Some of the currently approved drug therapies are branded and subject to patent protection, and others are available on a generic basis. Many of these approved drugs are well-established therapies and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. We expect that if our product candidates are approved, they will be priced at a significant premium over competitive generic products. This may make it difficult for us to achieve our business strategy of using our product candidates in combination with existing therapies or replacing existing therapies with our product candidates.

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There are also a number of product candida tes in preclinical and clinical development by third parties to treat cancer by targeting cellular metabolism. Our principal competitors include Abbvie Inc., Advanced Cancer Therapeutics, LLC, Aeglea Biotherapeutics, Inc., Agios Pharmaceuticals, Inc., Astr aZeneca plc, Bayer Pharma AG, Boehringer Ingelheim GmbH, Bristol-Myers Squibb Company, Celgene Corporation, Cornerstone Pharmaceuticals, Inc., CureTech Ltd., Eli Lilly and Company, Forma Therapeutics Holdings, LLC, Fortress Biotech, Inc., GlaxoSmithKline p lc, Incyte Corporation, iTeos Therapeutics SA, Merck & Co., Janssen Biotech, Inc., Merck KGaA, NewLink Genetics Corporation, Novartis International AG, Ono Pharmaceuticals, Co., Ltd, Pfizer Inc., Quantum Pharmaceuticals, 3-V Biosciences, Inc., Regeneron Ph armaceuticals, Inc., Rhizen Pharmaceuticals SA, Roche Holdings, and its subsidiary Genentech Inc., Sanofi-Aventis Groupe, Sprint Biosciences, Takeda Pharmaceutical Co. Ltd. and TG Therapeutics, Inc.

Our competitors may develop products that are more effective, safer, more convenient or less costly than any that we are developing or that would render our product candidates obsolete or non-competitive. In addition, our competitors may discover biomarkers that more efficiently measure metabolic pathways than our methods, which may give them a competitive advantage in developing potential products. Our competitors may also obtain marketing approval from the FDA or other regulatory authorities for their products sooner than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our 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 may compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Even if we are able to commercialize any product candidates, these products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.

The regulations that govern marketing approvals, pricing and reimbursement for new drugs vary widely from country to country. In the United States, new and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product-licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial marketing approval is granted. As a result, we might obtain marketing approval for a drug in a particular country, but then be subject to price regulations that delay its commercial launch, possibly for lengthy time periods, and negatively impact the revenue we are able to generate from the sale of the drug in that country. Adverse pricing limitations may hinder our ability to commercialize and generate revenue from one or more product candidates, even if our product candidates obtain marketing approval.

Our ability to commercialize any product candidates successfully also will depend in part on the extent to which reimbursement for these products and related treatments will be available from government health programs, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A significant trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of payment 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. Reimbursement may not be available for any product that we commercialize and, if reimbursement is available, the level of reimbursement may not be sufficient. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

There may be significant delays in obtaining reimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the medical circumstances under which it is used, may be based on reimbursement levels already set for lower cost products or procedures or 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 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. Third-party payors often rely upon Medicare coverage policies and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded programs and private payors for any approved products that we

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develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize our approved products and our overall financial condition.

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit the commercialization of any product candidates we may develop.

We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop after approval. If we cannot successfully defend ourselves against claims that our product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

decreased demand for any product candidates that we may develop;

 

injury to our reputation and significant negative media attention;

 

withdrawal of clinical trial participants;

 

significant costs to defend any related litigation;

 

substantial monetary awards to trial participants or patients;

 

loss of revenue; and

 

the inability to commercialize any products we may develop.

Although we maintain product liability insurance coverage in the amount of up to $10.0 million per claim and in the aggregate, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as we continue clinical trials and if we successfully commercialize any products. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees in our workplace, including those resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, chemical, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Risks Related to Our Dependence on Third Parties

We rely on third parties to conduct our clinical trials and some aspects of our research and preclinical testing, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research or testing.

We currently rely and expect to continue to rely on third parties, such as our collaborators, contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to conduct our clinical trials and to conduct some aspects of our research and preclinical testing. Any of these third parties may terminate their engagements with us at any time. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully

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commercialize our product candidates. Furthermore, these third parties may also have relationships with other entities, some of wh ich may be our competitors. If we need to enter into alternative arrangements, it would delay our product development activities.

Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government sponsored database, available at www.clinicaltrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

We do not have any manufacturing facilities. We currently rely, and expect to continue to rely, on third party manufacturers for the manufacture of our product candidates for preclinical studies and clinical trials and for commercial supply of any of these product candidates for which we obtain marketing approval. To date, we have obtained or plan to obtain materials for CB-839 and CB-1158 for our current and planned clinical trials from third-party manufacturers. We have engaged third party manufacturers to obtain the active ingredient for CB-839 and CB-1158 for pre-clinical testing and clinical trials. We do not have a long-term supply agreement with any third-party manufacturers, and we purchase our required drug supply on a purchase order basis.

We may be unable to establish agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

 

reliance on the third party for regulatory compliance and quality assurance;

 

the possible breach of the manufacturing agreement by the third party; and

 

the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.

Third-party manufacturers may not be able to comply with current U.S. Good Manufacturing Practice requirements, or cGMPs, or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates, operating restrictions and criminal prosecutions, any of which could adversely affect supplies of our product candidates and harm our business and results of operations.

Any product that we may develop may compete with other product candidates and products for access to these manufacturing facilities. There are a limited number of manufacturers that operate under cGMPs and that might be capable of manufacturing for us.

Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply for bulk drug substances. If any one of our current contract manufacturers cannot perform as agreed, we may be required to replace that manufacturer. Although we believe that there are several potential alternative manufacturers who could manufacture our product candidates, we may incur added costs and delays in identifying and qualifying any such replacement.

Our current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize any product candidates that receive marketing approval on a timely and competitive basis.

We also currently rely, and expect to continue to rely, on third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of these third parties could delay clinical development or marketing approval of our product candidates or commercialization of our drugs, producing additional losses and depriving us of potential revenue. Although we believe that there are several potential alternative third parties who could store and distribute drug supplies for our clinical trials, we may incur added costs and delays in identifying and qualifying any such replacement.

Our arginase inhibitors program in hematology and oncology indications, including CB-1158, is reliant in part on Incyte for the successful development and commercialization in a timely manner. If Incyte does not devote sufficient resources to CB-1158’s

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development, is unsuccessful in its efforts, or chooses to terminat e its agreement with us, our business, operating results and financial condition will be harmed.

We have entered into the Incyte Collaboration Agreement under which we have granted Incyte an exclusive, worldwide license to develop and commercialize small molecule arginase inhibitors for hematology and oncology indications, including CB-1158, which is currently in phase 1 clinical trials.

Under the agreement, we and Incyte will jointly conduct and co-fund development of CB-1158, with Incyte leading global development activities. Unless we opt out of our co-funding obligation, Incyte will fund 70 percent of global development and we will be responsible for the remaining 30 percent. Should we disagree with Incyte about the clinical development or commercialization strategy, we could escalate the disagreement to our representatives on the Joint Steering Committee for resolution. Calithera and Incyte are obligated to use good faith efforts to resolve such disputes; however, in cases of deadlock, Incyte will have the deciding vote. If the agreement is terminated, other than as a result of our breach, with respect to one or more products or countries, all rights in the terminated products and countries revert to us. The Incyte collaboration may not be clinically or commercially successful due to a number of important factors, including the following:

 

Subject to the terms of our collaboration agreement, including diligence obligations, although Incyte has certain obligations to use commercially reasonable efforts to develop and commercialize CB-1158, Incyte has discretion in determining the efforts and resources that it will apply to its partnership with us. The timing and amount of any development milestones, and downstream commercial milestones and royalties that we may receive under such partnership will depend on, among other things, the efforts, allocation of resources and successful development and commercialization of CB-1158;

 

Incyte may select a dose for CB-1158 that does not have a favorable benefit/risk profile;

 

Incyte may terminate its partnership with us without cause and for circumstances outside of our control, which could make it difficult for us to attract new strategic partners or adversely affect how we are perceived in scientific and financial communities;

 

Incyte may develop or commercialize CB-1158 in a way that exposes us to potential litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential liability; and

If Incyte were to breach our collaboration agreement, we may need to enforce our rights under the agreement, which could be costly. If we were to terminate our agreement with Incyte due to Incyte’s breach or if Incyte were to terminate the agreement without cause, there could be a delay in the return of our rights to CB-1158 and the development and commercialization of CB-1158 would be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue development and commercialization on our own.

Incyte may enter into one or more transactions with third parties, including a merger, consolidation, reorganization, sale of substantial assets, sale of substantial stock or other change in control, which could divert the attention of its management and adversely affect Incyte’s ability to retain and motivate key personnel who are important to the continued development of the small molecule arginase inhibitor program. In addition, the third party to any such transaction could reprioritize Incyte’s development programs which could delay the development of our programs or cause Incyte to terminate the agreement.

We have in the past and may seek in the future to selectively establish collaborations, and, if we are unable to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.

Our drug development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. In addition to our collaboration with Incyte, for some of our product candidates, we may decide to collaborate with additional pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.

We may also be restricted under existing license agreements from engaging in research and development activities or entering into future agreements on certain terms with potential collaborators. For example, pursuant to our license agreement with Symbioscience, we have agreed not to develop any other arginase inhibitors for use in human healthcare outside of the scope of that agreement. In addition, under our agreement with Incyte, we are not allowed to develop any retained arginase inhibitors (small molecule arginase inhibitors, other than CB-1158, retained by Calithera for research and development in non-hematology/oncology indications) for any indication except specific orphan indications outside of hematology and oncology.

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We face significant competition in seeking appropriate collabor ators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s ev aluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ow nership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates for similar indications that may be available to collaborate on and whether such a collabo ration could be more attractive than the one with us for our product candidate.

Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

If we decide to collaborate with any other third parties in connection with any of our development programs or product candidates, we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development program or the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

To the extent we enter into any other collaborations, we may depend on such collaborations for the development and commercialization of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of our product candidates.

We may selectively seek additional third-party collaborators for the development and commercialization of our product candidates. Our current and any future collaborators for any collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. Pursuant to these arrangements and any potential future arrangements, we will have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenue from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.

Collaborations involving our product candidates, including our collaboration with Incyte, pose many risks to us, including that:

 

Collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

Collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;

 

Collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

Collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates or products if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

 

A collaborator with marketing and distribution rights to one or more product candidates or products may not commit sufficient resources to the marketing and distribution of such drugs;

 

Collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;

 

Disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our product candidates or products or that result in costly litigation or arbitration that diverts management attention and resources;

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We may lose certain valuable rights under circumstances identified in our collaborations if we undergo a change of control;

 

Collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates; and

 

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished or terminated.

We have in-licensed portfolios of arginase inhibitors and hexokinase II inhibitors, respectively, as part of our efforts to develop product candidates for these programs, and we are substantially dependent on these in-licenses for these programs. To the extent these in-licenses are terminated, our business may be harmed.

Risks Related to Our Intellectual Property

Recent laws and rulings by U.S. courts make it difficult to predict how patents will be issued or enforced in our industry.

Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. There have been numerous recent changes to the patent laws and to the rules of the United States Patent and Trademark Office, or the USPTO, which may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, the Leahy-Smith America Invents Act, which was signed into law in 2011, includes a transition from a “first-to-invent” system to a “first-to-file” system, and changes the way issued patents are challenged. Certain changes, such as the institution of inter partes review proceedings, came into effect on September 16, 2012. Substantive changes to patent law associated with the America Invents Act may affect our ability to obtain patents, and, if obtained, to enforce or defend them in litigation or post-grant proceedings, all of which could harm our business.

Furthermore, the patent positions of companies engaged in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. Two cases involving diagnostic method claims and “gene patents” have recently been decided by the Supreme Court. On March 20, 2012, the Supreme Court issued a decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. , or Prometheus , a case involving patent claims directed to measuring a metabolic product in a patient to optimize a drug dosage amount for the patient. According to the Supreme Court, the addition of well-understood, routine or conventional activity such as “administering” or “determining” steps was not enough to transform an otherwise patent ineligible natural phenomenon into patent eligible subject matter. On July 3, 2012, the USPTO issued guidance indicating that process claims directed to a law of nature, a natural phenomenon or an abstract idea that do not include additional elements or steps that integrate the natural principle into the claimed invention such that the natural principle is practically applied and the claim amounts to significantly more than the natural principle itself should be rejected as directed to non-statutory subject matter. On June 13, 2013, the Supreme Court issued its decision in Association for Molecular Pathology v. Myriad Genetics, Inc. , or Myriad , a case involving patent claims held by Myriad Genetics, Inc. relating to the breast cancer susceptibility genes BRCA1 and BRCA2. Myriad held that isolated segments of naturally occurring DNA, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patent eligible subject matter, but that complementary DNA, which is an artificial construct that may be created from RNA transcripts of genes, may be patent eligible.

We cannot assure you that our efforts to seek patent protection for our technology and products will not be negatively impacted by the decisions described above, rulings in other cases or changes in guidance or procedures issued by the USPTO. We cannot fully predict what impact the Supreme Court’s decisions in Prometheus and Myriad may have on the ability of life science companies to obtain or enforce patents relating to their products and technologies in the future.

Moreover, although the Supreme Court has held in Myriad that isolated segments of naturally occurring DNA are not patent-eligible subject matter, certain third parties could allege that activities that we may undertake infringe other gene-related patent claims, and we may deem it necessary to defend ourselves against these claims by asserting non-infringement and/or invalidity positions, or pay to obtain a license to these claims. In any of the foregoing or in other situations involving third-party intellectual property rights, if we are unsuccessful in defending against claims of patent infringement, we could be forced to pay damages or be subjected to an injunction that would prevent us from utilizing the patented subject matter. Such outcomes could harm our business.

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

Our research, development and commercialization activities may be alleged to infringe patents, trademarks or other intellectual property rights owned by other parties. Certain of our competitors and other companies in the industry have substantial patent portfolios and may attempt to use patent litigation as a means to obtain a competitive advantage. We may be a target for such litigation. Even if our pending patent applications issue, they may relate to our competitors’ activities and may therefore not deter litigation against us. The risks of being involved in such litigation may also increase as we become more visible as a public company and move into new markets and applications for our product candidates. There may also be patents and patent applications that are relevant to our technologies or product candidates that are unknown to us. For example, certain relevant patent applications may have been filed but not published. If such patents exist, or if a patent issues on any of such patent applications, that patent could be asserted against us. Third parties could bring claims against us that would cause us to incur substantial expenses and, if the claims against us are successful, could cause us to pay substantial damages, including treble damages and attorneys’ fees for willful infringement. The defense of such a suit could also divert the attention of our management and technical personnel. Further, if an intellectual property infringement suit were brought against us, we could be forced to stop or delay research, development or sales of the product that is the subject of the suit.

As a result of infringement claims, or to avoid potential claims, we may choose or be compelled to seek intellectual property licenses from third parties. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us likely would be nonexclusive, which would mean that our competitors also could obtain licenses to the same intellectual property. Ultimately, we could be prevented from commercializing a product candidate and/or technology or be forced to cease some aspect of our business operations if, as a result of actual or threatened infringement claims, we are unable to enter into licenses of the relevant intellectual property on acceptable terms. Further, if we attempt to modify a product candidate and/or technology or to develop alternative methods or products in response to infringement claims or to avoid potential claims, we could incur substantial costs, encounter delays in product introductions or interruptions in sales.

We may become involved in other lawsuits to protect or enforce our patents or other intellectual property, which could be expensive and time-consuming, and an unfavorable outcome could harm our business.

In addition to the possibility of litigation relating to infringement claims asserted against us, we may become a party to other patent litigation and other proceedings, including inter partes review proceedings, post-grant review proceedings, derivation proceedings declared by the USPTO and similar proceedings in foreign countries, regarding intellectual property rights with respect to our current or future technologies or product candidates or products. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace.

Competitors may infringe or otherwise violate our intellectual property, including patents that may issue to or be licensed by us. As a result, we may be required to file claims in an effort to stop third-party infringement or unauthorized use. Any such claims could provoke these parties to assert counterclaims against us, including claims alleging that we infringe their patents or other intellectual property rights. This can be expensive, particularly for a company of our size, and time-consuming, and even if we are successful, any award of monetary damages or other remedy we may receive may not be commercially valuable. In addition, in an infringement proceeding, a court may decide that our asserted intellectual property is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our intellectual property does not cover its technology. An adverse determination in any litigation or defense proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

If the breadth or strength of our patent or other intellectual property rights is compromised or threatened, it could allow third parties to commercialize our technology or products or result in our inability to commercialize our technology and products without infringing third-party intellectual property rights. Further, third parties may be dissuaded from collaborating with us.

Interference or derivation proceedings brought by the USPTO or its foreign counterparts may be necessary to determine the priority of inventions with respect to our patent applications, and we may also become involved in other proceedings, such as re-examination proceedings, before the USPTO or its foreign counterparts. Due to the substantial competition in the pharmaceutical space, the number of such proceedings may increase. This could delay the prosecution of our pending patent applications or impact the validity and enforceability of any future patents that we may obtain. In addition, any such litigation, submission or proceeding may be resolved adversely to us and, even if successful, may result in substantial costs and distraction to our management.

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Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. Moreover, intellectual property law relating to the fields in which we operate is still evolving and, consequently, patent and other inte llectual property positions in our industry are subject to change and are often uncertain. We may not prevail in any of these suits or other efforts to protect our technology, and the damages or other remedies awarded, if any, may not be commercially valua ble. During the course of this type of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, the market p rice for our common stock could be significantly harmed.

We may not be able to protect our intellectual property rights throughout the world, which could impair our competitive position.

Filing, prosecuting, defending and enforcing patents on all of our technologies, product candidates and products throughout the world would be prohibitively expensive. As a result, we seek to protect our proprietary position by filing patent applications in the United States and in select foreign jurisdictions and cannot guarantee that we will obtain the patent protection necessary to protect our competitive position in all major markets. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export infringing products to territories where we may obtain patent protection but where enforcement is not as strong as that in the United States. These products may compete with our current and future products in jurisdictions where we do not have any issued patents, and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or the marketing of competing products in violation of our proprietary rights generally. The legal systems of certain countries make it difficult or impossible to obtain patent protection for pharmaceutical products and services. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and could divert our efforts and attention from other aspects of our business.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.

In addition to seeking patents for some of our technologies and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention assignment agreements with our employees and consultants that obligate them to assign to us any inventions developed in the course of their work for us. However, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets or that the agreements we have executed will provide adequate protection. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. As a result, we may be forced to bring claims against third parties, or defend claims that they bring against us, to determine ownership of what we regard as our intellectual property. Monitoring unauthorized disclosure is difficult and we do not know whether the procedures we have followed to prevent such disclosure are, or will be adequate. 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 courts inside and outside the United States may be less willing or unwilling to protect trade secrets. If any of the technology or information that we protect as trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to, or independently developed by, a competitor, our competitive position would be harmed.

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest, and our business may be harmed.

Our trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks. As a means to enforce our trademark rights and prevent infringement, we may be required to file trademark claims against third parties or initiate trademark opposition proceedings. This can be expensive and time-consuming, particularly for a company of our size. In addition, in an infringement proceeding, a court may decide that a trademark of ours is not valid or is unenforceable, or may refuse to stop the other party from using the trademark at issue. We may not be able to protect our rights to these and other trademarks and trade names which we need to build name recognition by potential partners or customers in our markets of interest. We do not currently have any registered trademarks in the United States. Any trademark applications in the United States and in other foreign jurisdictions where we may file may not be allowed or may subsequently be opposed. In addition, other companies in the biopharmaceutical space may be using trademarks that are similar to ours and may in the future allege that our use of

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the trademark infringes or other wise violates their trademarks. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be harmed.

Third parties may assert ownership or commercial rights to inventions we develop.

Third parties may in the future make claims challenging the inventorship or ownership of our intellectual property. We have written agreements with collaborators that provide for the ownership of intellectual property arising from our collaborations. In some instances, there may not be adequate written provisions to address clearly the resolution of intellectual property rights that may arise from a collaboration. If we cannot successfully negotiate sufficient ownership and commercial rights to the inventions that result from our collaborations, or if disputes otherwise arise with respect to the intellectual property developed in the course of a collaboration, we may be limited in our ability to capitalize on the market potential of these inventions.

In addition, we may face claims by third parties that our agreements with employees, contractors or consultants obligating them to assign intellectual property to us are ineffective or are in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such inventions. Litigation may be necessary to resolve an ownership dispute, and if we are not successful, we may be precluded from using certain intellectual property, or may lose our exclusive rights in that intellectual property. Either outcome could have an adverse impact on our business.

Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters

Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates. If we or our collaborators are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize, or will be delayed in commercializing, our product candidates, and our ability to generate revenue will be impaired.

Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have not received approval to market any of our product candidates from regulatory authorities in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party contract research organizations to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.

The process of obtaining marketing approvals, both in the United States and elsewhere, is expensive, may take many years and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. We cannot assure you that we will ever obtain any marketing approvals in any jurisdiction. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical or other studies, and clinical trials. In addition, varying interpretations of the data obtained from preclinical testing and clinical trials could delay, limit or prevent marketing approval of a product candidate. Additionally, any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

Any product candidate for which we obtain marketing approval could be subject to marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products.

Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements, quality assurance and corresponding maintenance of records and

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documents and requirements regarding the distribution of samples to physicians and rec ordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marke ting testing and surveillance to monitor the safety or efficacy of the medicine. The FDA closely regulates the post approval marketing and promotion of drugs to ensure that they are marketed only for the approved indications and in accordance with the prov isions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we do not market our products for their approved indications, we may be subject to enforcement action for off-label mark eting.

In addition, later discovery of previously unknown problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

restrictions on such products, manufacturers or manufacturing processes;

 

restrictions on the labeling, marketing, distribution or use of a product;

 

requirements to conduct post-approval clinical trials;

 

warning or untitled letters;

 

withdrawal of the products from the market;

 

refusal to approve pending applications or supplements to approved applications that we submit;

 

recall of products;

 

fines, restitution or disgorgement of profits or revenue;

 

suspension or withdrawal of marketing approvals;

 

refusal to permit the import or export of our products;

 

product seizure; and

 

injunctions or the imposition of civil or criminal penalties.

Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us 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 product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our medicines for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

 

the federal healthcare 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 under federal and state healthcare programs such as Medicare and Medicaid;

 

the federal False Claims Act imposes criminal and civil penalties, including 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, as amended by the Health Information Technology for Economic and Clinical Health Act, 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;

 

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;

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the Physician Payments Sunshine Act requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Hu man Services information related to physician payments and other transfers of value and physician ownership and investment interests; 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 non-governmental third-party payors, including private insurers, and 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.

Efforts to ensure that our 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 our 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 our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the Medicare Modernization Act applies 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 the Medicare Modernization Act may result in a similar reduction in payments from private payors.

We expect that healthcare reform measures that may be adopted in the future, could have a material adverse effect on our industry generally and on our ability to maintain or increase sales of any of our product candidates that we successfully commercialize. 

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

Risks Related to Employee Matters and Managing Growth

Our future success depends on our ability to retain our senior management team and to attract, retain and motivate qualified personnel.

We are highly dependent upon our senior management team, as well as the other principal members of our research and development teams. All of our executive officers are employed “at will,” meaning we or they may terminate the employment relationship at any time. We do not maintain “key person” insurance for any of our executives or other employees. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives.

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Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competit ion for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We expect to expand our operations, and may encounter difficulties in managing our growth, which could disrupt our business.

We expect to expand the scope of our operations, particularly in the areas of drug development, regulatory affairs and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. We may not be able to effectively manage the expected expansion of our operations or recruit and train additional qualified personnel. Moreover, the expected expansion of our operations may lead to significant costs and may divert our management and business development resources. For example, our facilities expenses may increase, or decrease which will vary depending on the time and terms of any facility lease or sublease we may enter into from time to time. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

We may engage in acquisitions that could disrupt our business, cause dilution to our stockholders or reduce our financial resources.

In the future, we may enter into transactions to acquire other businesses, products or technologies. Because we have not made any acquisitions to date, our ability to do so successfully is unproven. If we do identify suitable candidates, we may not be able to make such acquisitions on favorable terms, or at all. Any acquisitions we make may fail to strengthen our competitive position, and these transactions may be viewed negatively by customers or investors. We may decide to incur debt in connection with an acquisition or issue our common stock or other equity securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders. We could incur losses resulting from undiscovered liabilities of the acquired business that are not covered by the indemnification we may obtain from the seller. In addition, we may not be able to successfully integrate the acquired personnel, technologies and operations into our existing business in an effective, timely and non-disruptive manner. Acquisitions may also divert management attention from day-to-day responsibilities, increase our expenses and reduce our cash available for operations and other uses. We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our operating results.

Risks Related to Our Common Stock

The trading price of our common stock is likely to be volatile, and purchasers of our common stock could incur substantial losses.

Our stock price has fluctuated in the past and is likely to be volatile in the future. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience losses on their investment in our common stock. The market price for our common stock may be influenced by many factors, including:

 

the success of competitive products or technologies;

 

regulatory actions with respect to our product candidates or our competitors’ product and product candidates;

 

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;

 

results of clinical trials of our product candidates or those of our competitors;

 

regulatory or legal developments in the United States and other countries;

 

developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

the recruitment or departure of key personnel;

 

actual and anticipated fluctuations in our quarterly operating results;

 

the level of expenses related to any of our product candidates or clinical development programs;

 

the results of our efforts to in-license or acquire additional products or product candidates;

43


 

 

actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

variations in our financial results or those of companies that are perceived to be similar to us;

 

fluctuations in the valuation of companies perceived by investors to be comparable to us;

 

inconsistent trading volume levels of our shares;

 

announcement or expectation of additional financing efforts;

 

sales of our common stock by us, our insiders or our other stockholders;

 

changes in the structure of healthcare payment systems;

 

market conditions in the pharmaceutical and biotechnology sectors;

 

general economic, industry and market conditions; and

 

the other factors described in this “Risk Factors” section.

In addition, in the past, stockholders have initiated class action lawsuits against companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources.

Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

Our executive officers, directors and current beneficial owners of 5% or more of our common stock, in the aggregate, beneficially own a significant percentage of our outstanding common stock. These persons, acting together, will be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with the interests of other stockholders.

If securities or industry analysts do not publish research, or publish unfavorable research, about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, which may harm our operating results.

As a public company listed in the United States, we have and will continue to incur significant additional legal, accounting and other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the Securities and Exchange Commission, or the SEC, and the NASDAQ Global Select Market, may increase legal and financial compliance costs and make some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us, and our business may be harmed.

Further, failure to comply with these laws, regulations and standards might also make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, on committees of our Board of Directors or as members of senior management.

44


 

We do not anticipate paying any cash dividends on our common stock so any returns will be limited to changes in the value of our common stock.

We have never declared or paid cash dividends on our common stock. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of any existing or future credit facility may restrict our ability to pay dividends. Any return to stockholders will therefore be limited to the increase, if any, of our stock price.

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

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012, and for as long as we continue to be an “emerging growth company,” we expect to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We will continue to be an “emerging growth company” until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of our initial public offering in October 2014, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict if investors will find our common stock less attractive by our reliance on these exemptions. If some investors find our common stock less attractive as a result of our choices to reduce disclosure, there may be a less active trading market for our common stock, and our stock price may be more volatile.

If we are unable to maintain proper and effective internal controls over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected.

Effective internal controls are necessary for us to provide reliable financial reports and to protect from fraudulent, illegal or unauthorized transactions. If we cannot provide effective controls and reliable financial reports, our business and operating results could be harmed. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on the effectiveness of our internal control over financial reporting as of December 31, 2016. Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later of the date we are deemed to be a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an “emerging growth company,” as defined in the JOBS Act.

If material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately on a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence and cause the market price of our common stock to decline.

Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management or hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be lower as a result.

There are provisions in our certificate of incorporation and bylaws that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by our stockholders.

Our charter documents also contain other provisions that could have an anti-takeover effect, such as:

 

establishing a classified Board of Directors so that not all members of our Board of Directors are elected at one time;

 

permitting the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships;

 

providing that directors may only be removed for cause;

 

prohibits cumulative voting for directors;

 

requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws;

 

authorizing the issuance of “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan;

45


 

 

eliminating the ability of stockholders to call special meetings of stockholders; and

 

prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Any provision in our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. If a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business and financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Use of Proceeds from our Public Offering of Common Stock

On October 7, 2014, we closed our initial public offering, or IPO, in which we issued and sold 8,000,000 shares of our common stock at a public offering price of $10.00 per share, for net proceeds of $71.6 million, after deducting underwriting discounts and commissions of $5.6 million and offering expenses of $2.8 million paid by the Company. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities, or (iii) any of our affiliates. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-198355), which was declared effective by the SEC on October 1, 2014. Following the sale of the shares in connection with the closings of the IPO, the offering terminated.

There has been no material change in the planned use of proceeds from our IPO as described in our prospectus dated October 1, 2014, filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended. Since our IPO and through March 31, 2017, our operating activities have used approximately $41.0 million.

Repurchases of Shares or of Company Equity Securities

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

 

Item 5. Other Information.

None.

46


 

Item 6. E xhibits

The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are herein incorporated by reference.

 

47


 

SIGNAT URES

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

 

 

 

Calithera Biosciences, Inc.

 

 

Date: May 9, 2017

 

By: 

 

  /s/ Susan M. Molineaux

 

 

 

 

Susan M. Molineaux, Ph.D.

 

 

 

 

President and Chief Executive Officer

 

 

 

 

(Principal Executive and Principal Financial Officer)  

 

 

 

 

 

Date: May 9, 2017

 

By: 

 

  /s/ Stephanie Wong

 

 

 

 

Stephanie Wong

 

 

 

 

Vice President, Finance and Secretary

 

 

 

 

(Principal Accounting Officer)  

 

 

 

 

 

 

 

48


 

EXHIBIT INDEX

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

  

Incorporation By Reference

Exhibit
Number

  

Exhibit Description

  

Form

  

SEC File No.

  

Exhibit

  

Filing Date

 

 

 

 

 

 

3.1

  

Amended and Restated Certificate of Incorporation of Calithera Biosciences, Inc.

  

8-K

  

001-36644

  

3.1

  

10/07/2014

 

 

 

 

 

 

3.2

  

Amended and Restated Bylaws of Calithera Biosciences, Inc.

  

S-1

  

333-198355

  

3.4

  

9/19/2014

 

 

 

 

 

 

4.1

  

Reference is made to Exhibits 3.1 through 3.2.

  

 

  

 

  

 

  

 

 

 

 

 

 

 

4.2

  

Form of common stock certificate.

  

S-1

  

333-198355

  

4.1

  

9/25/2014

 

 

 

 

 

 

10.1†

 

Collaboration and License Agreement between Incyte Corporation and the Registrant, dated January 27, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.2

 

Third Amendment to Lease Agreement between Are-Technology Center SSF, LLC and the Registrant, dated February 28, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1

  

Certification of Principal Executive and Financial Officer pursuant to Rule 13a-14(a).

  

 

 

 

 

 

 

 

 

 

 

 

 

 

32.1*

  

Certification of Principal Executive and Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  

 

  

 

  

 

  

 

 

 

 

 

 

 

101.INS

  

XBRL Instance Document.

  

 

  

 

  

 

  

 

 

 

 

 

 

 

101.SCH**

  

XBRL Taxonomy Extension Schema Document.

  

 

  

 

  

 

  

 

 

 

 

 

 

 

101.CAL**

  

XBRL Taxonomy Extension Calculation Linkbase Document.

  

 

  

 

  

 

  

 

 

 

 

 

 

 

101.DEF**

  

XBRL Taxonomy Extension Definition Linkbase Document.

  

 

  

 

  

 

  

 

 

 

 

 

 

 

101.LAB**

  

XBRL Taxonomy Extension Label Linkbase Document.

  

 

  

 

  

 

  

 

 

 

 

 

 

 

101.PRE**

  

XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

 

 

 

 

 

*

The Certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Calithera Biosciences, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

**

Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Balance Sheets, (ii) Condensed Statements of Operations, (iii) Condensed Statements of Comprehensive Loss, (iv) Condensed Statements of Cash Flows, and (v) Notes to Financial Statements, tagged as blocks of text and including detailed tags.

Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

 

49

 

EXHIBIT 10.1

EXECUTION VERSION

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

COLLABORATION AND LICENSE AGREEMENT

by and between

Incyte Corporation

and

Calithera Biosciences, Inc.

dated as of January 27, 2017

 

 

 

 


 

Table of Contents

 

 

 

 

 

Page

 

 

 

 

 

ARTICLE I

 

DEFINITIONS

 

1

 

 

 

 

 

ARTICLE II

 

LICENSES

 

20

 

 

 

 

 

2.1

 

Rights Granted by Calithera to Incyte

 

20

 

 

 

 

 

2.2

 

Sublicenses

 

21

 

 

 

 

 

2.3

 

Section 365(n) of the Bankruptcy Code

 

22

 

 

 

 

 

2.4

 

Retained Rights

 

22

 

 

 

 

 

2.5

 

Rights Granted by Incyte to Calithera

 

23

 

 

 

 

 

2.6

 

Exclusivity

 

24

 

 

 

 

 

2.7

 

[ * ]

 

24

 

 

 

 

 

2.8

 

No Implied Licenses; Negative Covenant

 

25

 

 

 

 

 

2.9

 

Subcontractors

 

25

 

 

 

 

 

ARTICLE III

 

GOVERNANCE

 

25

 

 

 

 

 

3.1

 

Joint Steering Committee

 

25

 

 

 

 

 

3.2

 

Subcommittees; Working Groups; Alliance Manager

 

26

 

 

 

 

 

3.3

 

Committee Meetings

 

30

 

 

 

 

 

3.4

 

Authority

 

30

 

 

 

 

 

3.5

 

Decisions

 

30

 

 

 

 

 

3.6

 

Finance Working Group

 

31

 

 

 

 

 

3.7

 

Committee Membership

 

31

 

 

 

 

 

ARTICLE IV

 

INFORMATION TRANSFER; ARGINASE INHIBITOR POOL

 

31

 

 

 

 

 

4.1

 

Information Transfer

 

31

 

 

 

 

 

4.2

 

Arginase Inhibitor Pool

 

32

 

 

 

 

 

ARTICLE V

 

DEVELOPMENT; REGULATORY MATTERS

 

35

 

 

 

 

 

5.1

 

Conduct of Development Activities

 

35

 

 

 

 

 

5.2

 

Auto Opt-Out Event and Co-Development Opt-Out Right

 

37

 

 

 

 

 

-i-

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


Table of Contents

(continued)

 

 

 

 

 

Page

5.3

 

Clinical Trial and Combination Studies

 

39

 

 

 

 

 

5.4

 

Development Reports

 

42

 

 

 

 

 

5.5

 

Regulatory Matters Related to Licensed Products

 

43

 

 

 

 

 

5.6

 

Recall or Withdrawal of Licensed Products

 

44

 

 

 

 

 

ARTICLE VI

 

CLINICAL AND COMMERCIAL SUPPLY

 

44

 

 

 

 

 

6.1

 

Calithera Manufacturing Obligation

 

44

 

 

 

 

 

6.2

 

On-Going Clinical Supply by Incyte

 

45

 

 

 

 

 

6.3

 

Commercial Supply by Incyte

 

45

 

 

 

 

 

6.4

 

Manufacturing Technology Transfer

 

45

 

 

 

 

 

ARTICLE VII

 

COMMERCIALIZATION AND CO-DETAILING OPTION

 

46

 

 

 

 

 

7.1

 

Commercialization Diligence

 

46

 

 

 

 

 

7.2

 

Marketing and Pricing Responsibilities for Licensed Products

 

46

 

 

 

 

 

7.3

 

Calithera Co-Detailing Option for Licensed Product in the United States

 

47

 

 

 

 

 

7.4

 

Global Branding; Trademarks

 

49

 

 

 

 

 

ARTICLE VIII

 

INTELLECTUAL PROPERTY OWNERSHIP,  PROTECTION AND RELATED MATTERS

 

50

 

 

 

 

 

8.1

 

Inventorship; Ownership

 

50

 

 

 

 

 

8.2

 

Prosecution and Maintenance of Patent Rights

 

51

 

 

 

 

 

8.3

 

Third Party Infringement

 

54

 

 

 

 

 

8.4

 

Third Party Licenses

 

56

 

 

 

 

 

ARTICLE IX

 

FINANCIAL PROVISIONS

 

58

 

 

 

 

 

9.1

 

License Fee

 

58

 

 

 

 

 

9.2

 

Milestone Payments

 

58

 

 

 

 

 

9.3

 

Royalties

 

60

 

 

 

 

 

9.4

 

Royalty Reports; Payments

 

61

 

 

 

 

 

9.5

 

Profit and Loss Sharing for Licensed Product in the United States

 

62

-ii-

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


Table of Contents

(continued)

 

 

 

 

 

Page

 

 

 

 

 

9.6

 

Financial Records

 

64

 

 

 

 

 

9.7

 

Audits

 

64

 

 

 

 

 

9.8

 

Tax Matters

 

66

 

 

 

 

 

9.9

 

Currency Exchange; Manner and Place of Payment

 

66

 

 

 

 

 

9.10

 

Late Payments

 

67

 

 

 

 

 

ARTICLE X

 

TERM AND TERMINATION

 

67

 

 

 

 

 

10.1

 

Term

 

67

 

 

 

 

 

10.2

 

Termination

 

67

 

 

 

 

 

10.3

 

Effects of Termination

 

69

 

 

 

 

 

10.4

 

Survival

 

70

 

 

 

 

 

10.5

 

Termination Not Sole Remedy

 

71

 

 

 

 

 

ARTICLE XI

 

INDEMNIFICATION; LIMITATION OF LIABILITY

 

71

 

 

 

 

 

11.1

 

By Incyte

 

71

 

 

 

 

 

11.2

 

By Calithera

 

72

 

 

 

 

 

11.3

 

Limitation of Liability

 

73

 

 

 

 

 

11.4

 

Insurance

 

73

 

 

 

 

 

ARTICLE XII

 

REPRESENTATIONS AND WARRANTIES AND COVENANTS

 

73

 

 

 

 

 

12.1

 

Representation of Authority; Consents

 

73

 

 

 

 

 

12.2

 

No Conflict

 

76

 

 

 

 

 

12.3

 

Additional Calithera Representations and Warranties

 

76

 

 

 

 

 

12.4

 

Covenants

 

80

 

 

 

 

 

12.5

 

Disclaimer of Warranty

 

80

 

 

 

 

 

ARTICLE XIII

 

CONFIDENTIALITY

 

80

 

 

 

 

 

13.1

 

Confidential Information

 

80

 

 

 

 

 

13.2

 

Permitted Disclosure

 

81

 

 

 

 

 

-iii-

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


Table of Contents

(continued)

 

 

 

 

 

Page

13.3

 

Publicity; Attribution; Terms of this Agreement; Non-Use of Names

 

82

 

 

 

 

 

13.4

 

Publications

 

83

 

 

 

 

 

13.5

 

Term

 

84

 

 

 

 

 

13.6

 

Return of Confidential Information

 

84

 

 

 

 

 

ARTICLE XIV

 

DISPUTE RESOLUTION

 

85

 

 

 

 

 

14.1

 

Dispute Resolution Process

 

85

 

 

 

 

 

14.2

 

Injunctive Relief

 

85

 

 

 

 

 

ARTICLE XV

 

MISCELLANEOUS

 

86

 

 

 

 

 

15.1

 

Governing Law

 

86

 

 

 

 

 

15.2

 

Assignment

 

86

 

 

 

 

 

15.3

 

Change of Control

 

86

 

 

 

 

 

15.4

 

Entire Agreement; Amendments

 

86

 

 

 

 

 

15.5

 

Notices

 

87

 

 

 

 

 

15.6

 

Force Majeure

 

87

 

 

 

 

 

15.7

 

Compliance with Laws

 

88

 

 

 

 

 

15.8

 

Use of Names, Logos or Symbols

 

88

 

 

 

 

 

15.9

 

Independent Contractors

 

88

 

 

 

 

 

15.10

 

Headings

 

88

 

 

 

 

 

15.11

 

No Implied Waivers; Rights Cumulative

 

88

 

 

 

 

 

15.12

 

Severability

 

88

 

 

 

 

 

15.13

 

Execution in Counterparts

 

88

 

 

 

 

 

15.14

 

No Third Party Beneficiaries

 

89

 

 

 

 

 

15.15

 

Exhibits

 

89

 

 

 

 

 

15.16

 

Effective Date

 

89

-iv-

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Table of Contents

(continued)

 

 

EXHIBITS

 

 

 

 

 

Exhibit 1.6

 

Arginase Inhibitor Pool

Exhibit 1.17

 

Calithera Patent Rights

Exhibit 4.1(a)

 

Initial Information Transfer Plan

Exhibit 4.2(a)

 

Initial Preclinical Studies and CMC Activities

Exhibit 5.1(b)

 

Initial Development Plan

Exhibit 5.3(a)

 

CB-1158-101 Study

Exhibit 12.3

 

Exceptions to Calithera Representations

Exhibit 13.3(a)

 

Form of Joint Press Release

 

 

 

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[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


 

COLLABORATION AND LICENSE AGREEMENT

THIS COLLABORATION AND LICENSE AGREEMENT (the “Agreement ”) is entered into as of January 27, 2017 (the “ Execution Date ”), by and between Incyte Corporation, a Delaware corporation, having an office at 1801 Augustine Cut-off, Wilmington, DE 19803 (“ Incyte ”), and Calithera Biosciences, Inc., a Delaware corporation, having an office at 343 Oyster Point Blvd #200, South San Francisco, CA 94080 (“ Calithera ”).

WHEREAS, Calithera is in the business of research and development of Arginase Inhibitors;

WHEREAS, Incyte is in the business of research, development and commercialization of pharmaceutical and biologic products; and

WHEREAS, Incyte and Calithera are interested in collaborating on activities relating to certain Arginase Inhibitors in oncology and hematology indications.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

When used in this Agreement, each of the following terms shall have the meanings set forth in this ARTICLE I:

1.1 Accounting Standards ” means that the Parties shall maintain records and books of accounts in accordance with (i) US GAAP applied on a consistent basis during the periods involved (United States Generally Accepted Accounting Principles) or (ii) if mandated by the SEC, IFRS applied on a consistent basis during the periods involved (International Financial Reporting Standards).  Notwithstanding the above, prior period restatements needed in conjunction with the IFRS adoption shall not impact royalty payments, milestone payments, Allowable Expenses, Net Profits and Development Costs already paid prior to the IFRS adoption except for the fiscal year immediately prior to the fiscal year in which the change in accounting standards is implemented.

1.2 Affiliate ” means, with respect to any Person, another Person which controls, is controlled by or is under common control with such Person.  A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.  Without limiting the generality of the foregoing, a Person shall be deemed to control another Person if any of the following conditions is met: (i) in the case of corporate entities, direct or indirect ownership of more than fifty percent (50%) of the stock or shares having the right to vote for the election of directors, and (b) in the case of non-corporate entities, direct or indirect ownership of more than fifty percent (50%) of the equity interest with the power to direct the management and policies of such non-corporate entities.  For

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


EXECUTION VERSION

 

the purposes of this Agreement, in no event shall Incyte or any of its Affiliate s be deemed Affiliates of Calithera or any of its Affiliates, nor shall the Calithera or any of its Affiliates be deemed Affiliates of Incyte or any of its Affiliates.   

1.3 Allowable Expenses ” means the following expenses to the extent specifically identifiable or reasonably allocable to a Licensed Compound or Licensed Product in the Hematology/Oncology Field with respect to Commercialization in the United States, or the manufacture for use in such Commercialization activities, by or on behalf of a Party or its Affiliates, and that are materially consistent with the then-current Commercial Budget:

(a) [ * ];

(b) [ * ];

(c) [ * ];

(d) [ * ];

(e) [ * ];

(f) [ * ];

(g) [ * ];

(h) [ * ];  

(i) [ * ];

(j) [ * ];

(k) [ * ];

(l) [ * ]; and

(m) [ * ];

provided that [ * ].  For clarity, Allowable Expenses excludes Development Costs .  

1.4 Annual Net Sales ” means, with respect to a Licensed Product, Net Sales of such Licensed Product in any Calendar Year, or, in the last year of the applicable Royalty Term, the portion of such Calendar Year during such Royalty Term.

1.5 Arginase Inhibitor ” means (a) any small molecule compound that inhibits the activity of the enzymes arginase I, arginase II, or both with a potency of [ * ] or lower, including CB-1158, in an assay to be determined by the JDC from time to time in accordance with Section 3.2(a)(ii) and (b) [ * ] of any compound in the preceding clause (a).  For clarity, [ * ].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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EXECUTION VERSION

 

1.6 Arginase Inhibitor Pool ” means CB-1158 and all other Arginase Inhibitors Controlled by Calithera as of the Execution Date or during the Term, including those Covered by the Calithera Patent Rights, and any Arginase Inhibitors [ * ] but excluding the Excluded Compounds.   For clar ity, the Arginase Inhibitors Controlled by Calithera as of the Execution Date include those listed in Exhibit 1.6 .    Notwithstanding the foregoing, subject to Section 2.6(b) , in the event of a Change of Control of Calithera, the Arginase Inhibitor Pool shall not include any Arginase Inhibitors owned or controlled by the acquiring Person described in the definition of “Change of Control,” directly or indirectly (other than indirectly through Calithera or any of its Affiliates existing as of the closing of such Change of Control), and in the event of a Change of Control of Incyte, the Arginase Inhibitor Pool shall not include any Arginase Inhibitors [ * ].

1.7 Arising IP ” means all Know-How discovered, made or conceived by either Party  or any of its respective Affiliates, employees, independent contractors or consultants (or jointly by both Parties or their respective Affiliates, employees, independent contractors or consultants): (a) in the course of conducting activities under this Agreement in the Hematology/Oncology Field, [ * ], and (b) [ * ], and, in each case ((a) and (b)), together with all Intellectual Property Rights in such Know-How, including Patent Rights Covering such Know-How.

1.8 Auto Opt-Out Event ” means a Development Auto Opt-Out Event or a Commercial Auto Opt-Out Event.

1.9 Back-up Licensed Compound ” means any compound in the Arginase Inhibitor Pool selected by Incyte (other than the Lead Licensed Compound) and designated as a back-up Licensed Compound for Development in the Hematology/Oncology Field pursuant to Section 4.2, as such compound may be substituted from time to time during the Term by Incyte upon written notification to Calithera pursuant to Section 4.2.

1.10 Bankruptcy Event ” means with respect to a Party (a) the entry of an order for relief under the Bankruptcy Code (or any other bankruptcy, insolvency, reorganization or other similar act or law of any jurisdiction now or hereafter in effect) by such Party; (b) the commencement of an involuntary proceeding under the Bankruptcy Code or any other bankruptcy, insolvency, reorganization or other similar act or law of any jurisdiction now or hereafter in effect against such Party, if not dismissed, bonded or stayed within ninety (90) days after such commencement; (c) the making by such Party of a general assignment for the benefit of creditors; or (d) the appointment of or taking possession by a receiver, liquidator, assignee, custodian, or trustee of all or substantially all of the business or property of such Party,

1.11 Breakthrough Therapy Designation ” means, with respect to a Licensed Product, the approval of an application filed with the FDA granting such Licensed Product a “Breakthrough Therapy” designation in accordance with the rules and regulations promulgated under the United States Federal Food, Drug, and Cosmetic Act, as amended from time to time.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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EXECUTION VERSION

 

1.12 Business Day ” means any day except Saturday, Sunday and any day on which banking institutions in New York, New York, generally are closed as a result of federal, state or local holiday.

1.13 Calendar Quarter ” means a calendar quarter ending on the last day of March, June, September or December.

1.14 Calendar Year ” means a period of time commencing on January 1 and ending on the following December 31.

1.15 Calithera IP ” means Calithera Know-How and Calithera Patent Rights.

1.16 Calithera Know-How ” means all Know-How that (a) either (i) is Controlled by Calithera or any of its Affiliates (subject to Section 15.3(d)) as of the Execution Date or (ii) is Controlled during the Term by Calithera (including any Know-How falling within the definition of Arising IP owned solely by Calithera, but specifically excluding any Joint Arising IP) and (b) is necessary or useful to Develop, manufacture or Commercialize any Licensed Compounds or Licensed Products in the Hematology/Oncology Field; provided that [ * ].

1.17 Calithera Patent Rights ” means all Patent Rights that (a) are Controlled by Calithera or its Affiliates (subject to Section 15.3(d)) as of the Execution Date or during the Term and (b) are necessary or useful to Develop, manufacture or Commercialize any Licensed Compounds or Licensed Products in the Hematology/Oncology Field; provided that Calithera Patent Rights specifically exclude all Joint Patent Rights.   The Calithera Patent Rights in existence as of the Execution Date are listed in Exhibit 1.17.  

1.18 Change of Control ” means, with respect to a Party, the occurrence of any of the following after the Execution Date:

(a) Any “person” or “group” (as such terms are defined below) (i) is or becomes the “beneficial owner” (as defined below), directly or indirectly, of shares of capital stock of such Party then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of the members of the board of directors of such Party (“ Board of Directors ” and such shares of capital stock, the “ Voting Stock ”) representing a majority of the total voting power of all outstanding classes of Voting Stock of such Party or (ii) has the power, directly or indirectly, to elect a majority of the members of such Party’s Board of Directors; or

(b) Such Party enters into a merger, consolidation or similar transaction with another Person and as a result of such merger, consolidation or similar transaction (i) the members of a Board of Directors of such Party immediately prior to such transaction, immediately following such transaction, (a) constitute less than a majority of the members of a Board of Directors of such Party or such surviving Person or such parent of such Party or the surviving Person or (b) do not represent a majority of the voting power within the Board of

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

4


EXECUTION VERSION

 

Directors of s uch Party or such surviving Person or such parent of such Party or the surviving Person or (ii) Persons that beneficially owned, directly or indirectly, the shares of Voting Stock of such Party immediately prior to such transaction cease to beneficially ow n, directly or indirectly, shares of Voting Stock of such Party representing a majority of the total voting power of all outstanding classes of Voting Stock of such Party or the surviving Person or such parent of such Party or the surviving Person as their ownership of Voting Stock of such Party immediately prior to such transaction; or

(c) Such Party sells or transfers to any Third Party, in one or more related transactions, properties or assets representing all or substantially all of such Party’s assets to which this Agreement relates; or

(d) The general meeting of shareholders of such Party adopt a resolution or the holders of shares or other interests of such Party approve a proposal, as applicable, for the dissolution of such Party or for the approval of a resolution or a plan, as applicable, resulting in the liquidation of all or substantially all of such Party’s assets. 

(e) For the purpose of this definition of Change of Control, (i) “person” and “group” have the meanings given such terms under Section 13(d) and 14(d) of the United States Securities Exchange Act of 1934 and the term “group” includes any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the said Act; (ii) a “beneficial owner” shall be determined in accordance with Rule 13d-3 under the aforesaid Act; and (iii) the terms “beneficially owned” and “beneficially own” shall have meanings correlative to that of “beneficial owner.”

1.19 Clinical Trial ” means a Phase I Study, a Phase II Study, a Phase III Study, a Phase IV Study or a combination of two (2) or more of any of the foregoing studies.

1.20 CMC ” means chemistry, manufacturing and control.

1.21 Co-Development Funding Share Obligations ” means, with respect to (i) Calithera, subject to its exercise of the Co-Development Opt-Out Right or the occurrence of an Auto Opt-Out Event, its obligation to fund thirty percent (30%) of the Development Costs for the Licensed Compounds and Licensed Products in the Territory and (ii) Incyte, subject to the exercise by Calithera of the Co-Development Opt-Out Right or the occurrence of an Auto Opt-Out Event, its obligation to fund seventy percent (70%) of the Development Costs for the Licensed Compounds and Licensed Products in the Territory.

1.22 Co-Development Opt-Out Right ” means Calithera’s right to discontinue its co-exclusive Development obligations and Co-Development Funding Share Obligations with respect to the Licensed Compounds in the Territory pursuant to Section 5.2(b).

1.23 Commercialization ” or “ Commercialize ” means any activities directed toward maintaining Regulatory Approval, obtaining and maintaining Pricing and Reimbursement

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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EXECUTION VERSION

 

Approval , marketing, promoting, distributing, importing, Detailing, offering to sell, and/or selling a Licensed Product (including establishing the price for such product), including Non-Required Phase IV Studies.

1.24 Commercially Reasonable Efforts ” means, with respect to a Party, the level of efforts to conduct an activity as [ * ] to conduct a similar activity under similar circumstances, it being understood and agreed that, with respect to efforts to be expended in relation to a Licensed Product, such efforts shall [ * ], provided that such efforts continue to be commercially reasonable in light of the scientific and economic outlook for such Licensed Product, all as measured by the facts and circumstances at the time such efforts are due.

1.25 Confidential Information ” of a Party means (a) all confidential or proprietary information relating to Licensed Compounds and Licensed Products, and (b) all other confidential or proprietary documents, technology, Know-How or other information (whether or not patentable) actually disclosed by such Party to the other pursuant to this Agreement or the Prior Confidentiality Agreement.

1.26 Control ” or “ Controlled ” means, with respect to any (a) material, document, item of information, method, data or other Know-How or (b) Patent Rights or other Intellectual Property Rights, the possession by a Party or its Affiliates, whether by ownership or license (other than by licenses granted under this Agreement), of the ability to grant to the other Party access, a license and/or a sublicense as provided herein without requiring the consent of a Third Party or violating the terms of any agreement or other arrangement with any Third Party , in each case as of the Execution Date, or if any of the same are acquired or created after the Execution Date, at the date it is acquired or created by the relevant Party or its Affiliate.

1.27 Cover ”, “ Covering ” or “ Covered ” means, with respect to a product, technology, process or method, that, but for a license granted to a Person under a Valid Claim included in the Patent Rights under which such license is granted, the Development, manufacture, Commercialization and/or other use of such product or the practice of such technology, process or method, by such Person would infringe such Valid Claim (or, in the case of a Valid Claim that has not yet issued, would infringe such Valid Claim if it were to issue).

1.28 Detail ” means the act of presenting information on the Licensed Product in a manner consistent with the Detailing Plan with the goal of increasing sales of such Licensed Product by sales representatives in the United States.  When used as a verb “ Detail ” or “ Detailing ” means to engage in a Detail.  

1.29 Development ” or “ Develop ” means, with respect to a Licensed Compound and Licensed Product, preclinical and clinical drug development activities, including: the conduct of pre-clinical studies (including the Initial Preclinical Studies), Clinical Trials, investigator initiated studies , synthesis of novel Arginase Inhibitors, biomarker and translational science, test method development and stability testing, toxicology, formulation and delivery system development, process development, pre-clinical and clinical Licensed Compound and Licensed

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

6


EXECUTION VERSION

 

Product supply, man ufacturing scale-up, manufacturing technology transfer, development-stage manufacturing, quality assurance/quality control procedure development and performance with respect to clinical materials, statistical analysis and report writing and clinical studie s, regulatory affairs, activities directed toward obtaining Regulatory Approval, and activities conducted under a Development Plan. When used as a verb, “ Develop ” means to engage in Development. For clarity, “ Development ” shall include Required Phase IV St udies.

1.30 Development Costs ” means [ * ].  “Development Costs” shall, subject to the first sentence of this definition, include (a) [ * ], (b) [ * ], (c) [ * ], (d) [ * ], (e) [ * ], (f) [ * ], (g) [ * ], (h) (A)[ * ] and (i) [ * ].  For clarity, “Development Costs” shall not include [ * ].

1.31 Disclosing Party ” means, with respect to Confidential Information, Patent Rights or Know-How, the Party that Controls such Confidential Information, Patent Rights or Know-How.

1.32 EU ” means the member states of the European Union, as constituted on the Execution Date and as it may be expanded from time to time following such date.

1.33 European Economic Area ” means the member states of the European Economic Area, as constituted on the Effective Date and as it may be expanded from time to time following such date.

1.34 Excluded Compound ” means [ * ].

1.35 Executive Officers ” means the Chief Executive Officer of Incyte (or a senior executive officer of Incyte designated by Incyte’s Chief Executive Officer) and the Chief Executive Officer of Calithera (or a senior executive officer of Calithera or its Affiliate as designated by Calithera’s Chief Executive Officer).

1.36 FDA ” means the United States Food and Drug Administration, or a successor agency thereto.

1.37 First Commercial Sale ” means, with respect to a Licensed Product, the first arm’s length commercial sale for monetary value of such Licensed Product to a Third Party (who is not a sublicensee) by, Incyte or its Affiliates or sublicensees in a country in the Territory following applicable Regulatory Approval of such Licensed Product in such country.   For clarity, (i) First Commercial Sale will be determined on a Licensed Product-by-Licensed Product and country-by-country (or region-by-region) basis, as applicable and (ii) sales or transfers (a) to an Affiliate or sublicensee or (b) of reasonable quantities of Licensed Product for Clinical Trial purposes, for a bona fide charitable purpose, or for compassionate or similar use shall not be considered a First Commercial Sale.  For purposes of further clarification, except as otherwise provided in the previous sentence, any first arm’s length commercial sale to a distributor or wholesaler under any non-conditional sale arrangement would be a First Commercial Sale.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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EXECUTION VERSION

 

1.38 Force Majeure Event ” means an event, act, occurrence, condition or state of facts, in each case outside the reasonable control of a Party, including: acts of God; acts of any government; any rules, regulations or orders issued by any governmen tal authority or by any officer, department, agency or instrumentality thereof; fire; storm; flood; earthquake; accident; war; rebellion; insurrection; riot; terrorism and invasion; in each case that interfere with the normal business operations of such Pa rty.

1.39 FTE ” means a full-time equivalent person year (consisting of a total of [ * ] of scientific, technical or commercialization work undertaken by Incyte or Calithera employees, as applicable. In no event shall one person be counted as more than one FTE.

1.40 FTE Rate ” means the rate per FTE (which may be prorated on a daily basis as necessary) of [ * ] per annum, with respect to Development or Commercialization activities conducted pursuant to this Agreement, subject to annual adjustment on each January 1 by the rate of the Employment Cost Index for total compensation for the “management, professional and related” occupational group, as published by the United States Department of Labor, Bureau of Labor Statistics (or any similar index agreed upon by the Parties if such index ceases to be compiled and published).

1.41 Generic Competition ” means, with respect to a Licensed Product in any country in a given Calendar Quarter, that, during such Calendar Quarter, one or more Generic Products are sold in or imported into such country.

1.42 Generic Product ” means, with respect to a Licensed Product, any product that contains the same Licensed Compound as such Licensed Product, and that (a) is sold by a Third Party that is not a licensee or sublicensee of Incyte or its Affiliates or other Person in a chain of distribution originating from Incyte, its Affiliates, or a licensee or sublicensee thereof or (b) is sold under a marketing authorization granted by a Regulatory Authority to a Person other than Incyte or its Affiliates or a licensee or sublicensee thereof .

1.43 Hematology/Oncology Field means, subject to Section 2.1(d), any use (including therapeutic, prophylactic, preventative or diagnostic) directed towards oncology and hematology Indications as defined in the International Classification of Diseases, Tenth Revision (ICD-10) (or subsequent revision that expands such definition) under (i) neoplasms (C00-D49) and (ii) diseases of the blood and blood-forming organs and certain disorders involving the immune mechanism (D50-D89) [ * ].  For clarity, the Hematology/Oncology Field specifically excludes all Indications in the Non-Hematology/Oncology Field.

1.44 IND ” means an Investigational New Drug Application filed with the FDA under 21 C.F.R. Part 312 or similar non-United States application or submission in any country or group of countries for permission to conduct human clinical investigations.

1.45 Indication ” means any disease, condition or syndrome, or sign or symptom of, or associated with, a disease or condition.  For clarity, Indications of the same cancer type shall be

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

8


EXECUTION VERSION

 

deemed the same Indication unless they (a) have different organs of o rigin (e.g., gastric cancer and renal cancer would be different Indications), or (b) are for a different hematological malignancy as classified by IDC10 codes (e.g., acute lymphoblastic leukemia, chronic myelogenous leukemia, non-Hodgkin's lymphoma, multip le myeloma, Hodgkin’s disease, chronic lymphocytic leukemia and acute myeloid leukemia are all different Indications).  [ * ].

1.46 Initiation ” or “ Initiate ” means, with respect to a Clinical Trial, the first dosing of the first human subject in such Clinical Trial.

1.47 Intellectual Property Rights ” means Patent Rights, trade secrets, copyrights and other forms of proprietary or industrial rights pertaining to Know-How, original works, and other forms of intellectual property.

1.48 Inventions ” means all inventions thereon that are discovered, made or conceived during and in connection with the research, Development, manufacture and Commercialization of Licensed Compounds or Licensed Products in the Hematology/Oncology Field.  For clarity, improvements to the inventions described in the foregoing and that are discovered, made or conceived during and in connection with the research, Development, manufacture and Commercialization of Licensed Compounds or Licensed Products in the Hematology/Oncology Field are also considered inventions for purposes of this definition.

1.49 Joint Arising IP ” means all Arising IP discovered, made or conceived jointly by the Parties or any of their respective Affiliates or their respective employees, independent contractors or consultants.

1.50 Joint Patent Rights ” means Patent Rights Covering Joint Arising IP.

1.51 Know-How ” means any information, ideas, data, Inventions, works of authorship, trade secrets, technology, practices, techniques, procedures, knowledge, skill, experience or materials, including formulations, molecules, assays, reagents, compounds, biologic molecules, compositions, methods of treatment and/or use thereof, human or animal tissue, samples or specimens, and combinations or components thereof, whether or not proprietary or patentable, or public or confidential, and whether stored or transmitted in oral, documentary, electronic or other form, including all regulatory documentation, but excluding any such information or materials publicly disclosed in Patent Rights.

1.52 Law ” means any law, statute, rule, regulation, ordinance or other pronouncement having the effect of law, of any federal, national, multinational, state, provincial, county, city or other political subdivision, including (a) good clinical practices and adverse event reporting requirements, guidance from the International Conference on Harmonization or other generally accepted conventions, and all other rules, regulations and requirements of the FDA and other applicable Regulatory Authorities, (b) the Foreign Corrupt Practices Act of 1977, as amended, or any comparable laws in any country (“ FCPA ”), and (c) all export control laws.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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EXECUTION VERSION

 

1.53 Lead Licensed Compound ” means any compound in the Arginase Inhibitor Pool selected by Incyte and designated as its lead Licensed Compound for Development in the Hematology/Oncology Field pursuant to Section 4.2 , as same may be substituted from time to ti me during the Term by Incyte upon written notification to Calithera pursuant to Section 4.2 ; provided that as of the Execution Date, the “Lead Lice nsed Compound” is the Licensed Compound that includes the Arginase Inhibitor commonly known as CB-1158 (“ CB-1158 ”). There may be only one Lead Licensed Compound at any time.

1.54 Licensed Compound ” means (a) CB-1158; and (b) any other compound in the Arginase Inhibitor Pool, including any Back-up Licensed Compound, but excluding any Retained Compound.

1.55 Licensed Product ” means any pharmaceutical or biological preparation in final form containing a Licensed Compound, alone or in combination with one or more other active agents not Controlled by Calithera, offered for sale by prescription, over-the-counter or any other method.

1.56 Major Market ” means the United States, [ * ].

1.57 Manufacturing Cost ” means [ * ] and [ * ], to manufacture a Licensed Compound or Licensed Product, in each case only to the extent allocable to such manufacture, including:

(a) [ * ];

(b) [ * ];

(c) [ * ];

(d) [ * ];

(e) [ * ];

(f) [ * ];

(g) [ * ];

(h) [ * ];

(i) [ * ];

(j) [ * ]; and

(k) [ * ].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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EXECUTION VERSION

 

1.58 Mars Agreement ” means that certain Collaboration and License Agreement by and between Calithera and Mars, Inc., by and through its Mars Symbioscience division (“ Mars ”), dated December 9, 2014, as amended from time to time in accordance with this Agreement.

1.59 Mars Patent Rights ” means all Patent Rights in the Calithera Patent Rights that are licensed to Calithera under the Mars Agreement.

1.60 NDA ” means (a) (i) a New Drug Application submitted to the FDA, or any successor application or procedure, as more fully defined in 21 C.F.R. § 314.50 et. seq., or (ii) any non-United States counterpart of such a New Drug Application, and (b) all supplements and amendments, including supplemental New Drug Applications (and any non-United States counterparts) that may be filed with respect to the foregoing.

1.61 Net Profits ” and, with correlative meaning, “ Net Losses ”, means, with respect to any period, Net Sales of a Licensed Product in the United States during such period less Allowable Expenses incurred in such period.    

1.62 Net Sales ” means, with respect to any Licensed Product in a particular period, the gross amount invoiced by Incyte or its Affiliates or sublicensees on sales or other dispositions of Licensed Product in such period to Third Parties, or otherwise directly or indirectly paid to or earned by Incyte or its Affiliates or sublicensees with respect to the sale of Licensed Product, less the following, to the extent actually incurred, allowed, or paid with respect to such sale or disposition by the selling party :

(a) trade, cash and/or quantity discounts not already reflected in the amount invoiced, to the extent related to the gross amount invoiced;

(b) allowances and adjustments credited or payable, including credit for spoiled, damaged, outdated, recalled and returned Licensed Product, to the extent related to the gross amount invoiced and substantiated by reasonable documentation;

(c) freight, insurance and other transportation charges incurred in shipping a Licensed Product to Third Parties, to the extent identified as such in the invoice to the Third Party, to the extent included in the gross amount invoiced;

(d) amounts repaid or credited by reason of rejections, defects, recalls or returns or because of chargebacks, refunds, rebates (including wholesaler inventory management fees, retroactive price reductions, commissions, discounts or billing errors, and any other allowances which effectively reduce the net selling price);

(e) all tariffs, duties, excises, sales taxes, or other taxes (including VAT) and custom duties imposed on Licensed Products, in each case to the extent invoiced to customers or otherwise included within gross amounts invoiced;

(f) allowance for distribution expenses; and

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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(g) other similar and customary deductions in the pharmaceutical industry wh ich are in accordance with United States Generally Accepted Accounting Principles and consistently applied across the selling party’s products.

Net Sales will not include sales between or among Incyte and its Affiliates and/or sublicensees; provided that any resale to Third Parties shall be included in Net Sales.

Net Sales shall be calculated in accordance with Incyte’s standard internal policies and procedures, which must be in accordance with Accounting Standards. In the case of any sale or other disposal for value, such as barter or counter-trade, of Licensed Product, or part thereof, other than in an arm’s length transaction exclusively for cash, Net Sales shall be calculated as     [ * ], as determined in accordance with Accounting Standards. [ * ].

In the event that Licensed Products are sold in a package with other products, any discount applied to determine Net Sales shall be based on the relative value contributed by such Licensed Products and each other product in such package.  In the event the Licensed Product is sold in a finished dosage form containing the Licensed Product in combination with one or more other active ingredients (a “ Combination Product ”), the Net Sales of the Licensed Product, for the purposes of determining royalty payments, shall be determined:

(i) in the event that the weighted (by sales volume) average price can be determined for both the Licensed Product and the other product(s), individually, for the prior Calendar Year in the applicable country, the Net Sales of the Licensed Product, for the purposes of determining royalty payments, shall be determined by multiplying the Net Sales (as defined above in this Section 1.62) of the Combination Product by the fraction, A/(A+B), where A is the weighted (by sales volume) average sale price in a particular country of the Licensed Product in the prior Calendar Year when sold separately in finished form and B is the weighted (by sales volume) average sale price in that country in the prior Calendar Year of the other product(s) sold separately in finished form;

(ii) In the event that the weighted (by sales volume) average sale price of the Licensed Product can be determined but the weighted (by sales volume) average sale price of the other product(s) cannot be determined for the prior Calendar Year in the applicable country, Net Sales for purposes of determining royalty payments shall be calculated by multiplying the Net Sales of the Combination Product by the fraction A / C where A is the weighted (by sales volume) average sale price of the Licensed Product in the applicable country in the prior Calendar Year when sold separately in finished form and C is the weighted (by sales volume) average sale price of the Combination Product;

(iii) in the event that the weighted (by sales volume) average sale price of the other product(s) can be determined but the weighted (by sales volume) average sale price of the Licensed Product cannot be determined for the prior Calendar Year in the applicable country, Net Sales for purposes of determining royalty payments shall be calculated by multiplying the Net Sales of the Combination Product by the following formula: one (1) minus B / C where B is

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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the weighted (by sales volume) average sale price of the other product(s) in the applicable country in the prior Calendar Year when sold separately in finished form and C is the weighted (by sales volume) average sale price of the Combination Product; and

(iv) in the event that such average sale price cannot be determined for both the Licensed Product and the other product(s) in combination for the prior Calendar Year in the applicable country, Net Sales for purposes of determining royalty payments shall be [ * ].

In the initial Calendar Year, a forecasted weighted average sale price will be used for the Licensed Product or other product(s). Any over or under payment due to a difference between forecasted and actual weighted average sale prices will be paid or credited in the first royalty payment of the following Calendar Year.

1.63 Non-Hematology/Oncology Field means [ * ] ; provided that such field may be expanded to include other orphan Indications upon mutual written consent of the Parties.

1.64 Operationalize ” or “ Operationalizing ” means, with respect to a Clinical Trial, the medical monitoring, clinical operations and safety monitoring conducted under Incyte’s oversight and direction and in accordance with a transfer of regulatory obligations (TORO).  For clarity, Incyte will be the sponsor of any such Clinical Trial and hold the IND related thereto.

1.65 Out-of-Pocket Costs ” means, with respect to certain activities hereunder, direct expenses paid or payable by either Party or its Affiliates to Third Parties (other than employees of such Party or its Affiliates) that are specifically identifiable and incurred to conduct such activities for the applicable Licensed Products, and have been recorded in accordance with the Accounting Standards, and for the avoidance of doubt shall include, for any applicable period, pre-paid amounts paid on or after the Effective Date to the extent amortized in such applicable period by means of amortizing such amounts over the time period in which the applicable activities as to which such pre-paid amounts relate are to be performed.

1.66 Party ” means Calithera or Incyte. “ Parties ” means Calithera and Incyte.

1.67 Patent Rights ” means all patents and patent applications in any country in the world, including any continuations, continuations-in-part, divisions, provisionals or any substitute applications, any patent issued with respect to any such patent applications, any reissue, reexamination, renewal or extension (including any supplemental protection certificate) of any such patent, and any confirmation patent or registration patent or patent of addition based on any such patent, and all non-United States counterparts of any of the foregoing.

1.68 Patent Term Extension ” means any patent term extension, adjustment or restoration or supplemental protection certificates, or the equivalent thereof, anywhere in the world.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.69 Person ” means any natural person, general or limited partnership, corporation, limited liability company, limited liability partnership, firm, association or organization or other legal entity.

1.70 Phase I Study ” means a study in humans which provides for the first introduction into humans of a product, conducted in healthy volunteers or patients to obtain information on product safety, tolerability, pharmacological activity or pharmacokinetics, as more fully defined in 21 C.F.R. § 312.21(a) (or the non-United States equivalent thereof).

1.71 Phase II Study ” means a study in humans of the safety, dose ranging and efficacy of a product, which is prospectively designed to generate sufficient data (if successful) to commence Pivotal Studies, as further defined in 21 C.F.R. § 312.21(b) (or the non-United States equivalent thereof).

1.72 Phase III Study ” means a controlled study in humans of the efficacy and safety of a product, which is prospectively designed to demonstrate statistically whether such product is effective and safe for use in a particular Indication in a manner sufficient to file an NDA to obtain Regulatory Approval to market the product, as further defined in 21 C.F.R. § 312.21(c) (or the non-United States equivalent thereof).

1.73 Phase IV Study ” means a pre-clinical study or human clinical study which is conducted on a product after Regulatory Approval of the product has been obtained from an appropriate Regulatory Authority, and includes (a) studies conducted voluntarily for enhancing marketing or scientific knowledge of an approved Indication (“ Non-Required Phase IV Studies ”), and (b) studies conducted after Regulatory Approval (i) due to request or requirement of a Regulatory Authority, or (ii) as a condition of a previously granted Regulatory Approval (collectively, “ Required Phase IV Studies ”).

1.74 Pivotal Study ” means (i) a Phase III Study intended to provide evidence for the target product claims in connection with, and to support a submission for, Regulatory Approval to market a product or (ii) that portion of a Clinical Trial (including a Phase II Study) that is not a Phase III Study but that is intended to support or which has the potential to form the basis for Regulatory Approval of a product.

1.75 PK and PD Goal ” means that the plasma concentration of the then-current Lead Licensed Compound exceeds [ * ] at a particular dose in the monotherapy dose escalation Phase I Study of a Licensed Compound at a dose that is safe (i.e., such dose does not exceed the maximum tolerated dose (e.g., a dose that could be used as the dose for a randomized study)).

1.76 Portfolio Product ” means, with respect to a Party, any therapeutic product the rights to which are owned or otherwise controlled by such Party (other than a Licensed Compound, Licensed Product or a Retained Compound).

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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1.77 Pricing and Reimbursement Approval ” means the approval, agreement, determination or decision from a Regulatory Authority establi shing the price and/or reimbursement for Licensed Product for sale in a given country or regulatory jurisdiction of the Territory, as required by Law in such country or other regulatory jurisdiction prior to or subsequent to the marketing and sale of Licen sed Product in such country or regulatory jurisdiction of the Territory.

1.78 Prior Confidentiality Agreement ” means the Mutual Confidential Disclosure Agreement by and between Incyte and Calithera, dated November 11, 2015, amended as of November 18, 2016.  

1.79 Proof of Concept ” or “ POC ” means, with respect to a Clinical Trial, that the results of such a trial demonstrate that [ * ]. To qualify as POC, all patients in an expansion cohort for non-small cell lung cancer, colorectal cancer or “other” cancers in the CB-1158-101 Study must begin therapy with the same dose and schedule and there must be at least [ * ] responses [ * ] at a dose that is safe (i.e., does not exceed the maximum tolerated dose).  For the purposes of this definition, “confirmed” shall mean that the response was seen on a repeat scan   [ * ] or is otherwise deemed “confirmed” by the JDC pursuant to the following sentence.  If a repeat scan is performed [ * ].

1.80 Publication ” means any publication in a scientific journal, any abstract to be presented to any scientific audience, any presentation at any scientific conference, including slides and texts of oral or other public presentations, any other scientific presentation and any other oral, written or electronic disclosure directed to a scientific audience which pertains to the Licensed Compound, the Licensed Product or the use of the Licensed Product.

1.81 Qualifying Change of Control ” means, with respect to a Change of Control of Calithera, that the acquiring Person described in the definition of Change of Control meets the following criteria: (a) [ * ]; (b) [ * ]; and (c) [ * ].

1.82 Regulatory Approval ” means all approvals (excluding any applicable Pricing and Reimbursement Approval), licenses, registrations, and authorizations of any federal, national, multinational, state, provincial or local Regulatory Authority, department, bureau and other governmental entity that are necessary and sufficient for the marketing and sale of a pharmaceutical product in a country or group of countries.

1.83 Regulatory Authority ” means, with respect to a country, the regulatory authority or regulatory authorities of such country with authority over the testing, manufacture, use, storage, importation, promotion, marketing, pricing or sale of a pharmaceutical or biologic product in such country.

1.84 Regulatory Documentation ” means, with respect to the Licensed Compounds and Licensed Products, all INDs, NDAs and other regulatory applications submitted to any Regulatory Authority, Regulatory Approvals, pre-clinical and clinical data and information,

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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regulatory materials, drug dossiers, master files (inclu ding Drug Master Files, as defined in 21 C.F.R. 314.420 and any non-United States equivalents), and any other reports, records, regulatory correspondence and other materials relating to Development or Regulatory Approval of a Licensed Compound or Licensed Product, or required to manufacture, distribute or sell the Licensed Products, including any information that relates to pharmacology, toxicology, chemistry, manufacturing and controls data, batch records, safety and efficacy, and any safety database.

1.85 Regulatory Exclusivity ” means, with respect to a particular country, the ability to exclude Third Parties from Commercializing a Licensed Product in such country, either through data exclusivity rights, orphan drug designation, or such other rights conferred by a Regulatory Authority in such country, other than through Patent Rights.

1.86 Regulatory Expenses ” means, with respect to a Licensed Compound or Licensed Product, all FTE costs (at the FTE Rate) and Out-of-Pocket Costs incurred by or on behalf of a Party in connection with the preparation and filing of regulatory submissions for Licensed Product that are submitted in connection with the obtaining of, maintaining, enhancing or expanding Regulatory Approvals.

1.87 Retained Compounds ” means those [ * ] Arginase Inhibitors selected by Calithera from the Arginase Inhibitor Pool and designated as Retained Compounds pursuant to Sections 4.2(b) and 4.2(c) (as same may be substituted in accordance with Section 4.2).

1.88 Right of Reference or Use ” means a “Right of Reference or Use” as that term is defined in 21 C.F.R. §314.3(b), and any non-United States equivalents.

1.89 SEC ” means the United States Securities and Exchange Commission.

1.90 Stock Purchase Agreement ” means the stock purchase agreement entered into on even date hereof by and between Calithera and Incyte (or one of its Affiliates) providing for Incyte’s (or one of its Affiliate’s) purchase of common stock of Calithera.

1.91 Territory ” means worldwide.

1.92 Third Party ” means any Person other than a Party or any of its Affiliates.

1.93 US Phase II Study ” means a randomized Phase II Study of a Licensed Compound conducted solely in the United States, for which no portion has the potential to serve as a Pivotal Study.

1.94 US Phase II Study Requirements ” means a US Phase II Study (i) conducted solely in the United States, (ii) for which Incyte is the sponsor and leads all communications all meetings with Regulatory Authorities, (iii) for which Incyte has decision-making authority with respect to all material matters related to such study and (iv) for which Calithera shall use a clinical database and a safety database that is compatible with Incyte’s clinical database and

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Incyte’s Global Safety Database.  In addition, adverse events from the Calithera safety database will be exchanged with Incyte per the timelines agreed to in t he Pharmacovigilance Agreement.   

1.95 United States ” or “ U.S. ” means the United States of America and its territories and possessions.

1.96 Valid Claim ” means (a) means a claim of a pending, issued or granted and unexpired patent Controlled by Calithera and licensed to Incyte under the Calithera Patent Rights or Joint Patent Rights that Cover a Licensed Product in the country of sale, which has not been revoked or held unenforceable, unpatentable or invalid by a decision of a court or other governmental agency of competent jurisdiction (which decision is not appealable or has not been appealed within the time allowed for appeal), and (b) which claim has not been disclaimed, denied or admitted to be invalid, unpatentable or unenforceable through reissue, re-examination or disclaimer or otherwise; provided that any such claim in any pending patent application has not been pending for more than [ * ] from the date of its earliest priority date; and provided further that if any such claim issues after the end of such [ * ], and the [ * ], it will upon such issuance again be a Valid Claim subject to clause (a) above.

1.97 Additional Definitions . Each of the following definitions is set forth in the section of this Agreement indicated below:

 

DEFINITION

SECTION

Additional Tax

9.8(b)

Agreement

Preamble

Alliance Manger

3.2

Auditee

9.7(f)

Audit Rights Holder

9.7(f)

Audit Team

9.7(f)

Authorized US Phase II Study

5.3(d)

Bankruptcy Code

2.2

Board of Directors

1.18(a)

Breaching Party

10.2(b)

Calithera

Preamble

Calithera Combination Study

5.3(e)

Calithera In-License Agreements

12.3(k)

Calithera Indemnified Parties

11.1(a)

Calithera Manufacturing Obligation

6.1

Calithera Owned Patent Rights

8.2(b)(i)

Calithera Retained Compound Patent Rights

8.2(b)(ii)

CB-1158

1.53

CB-1158-101 Study

5.3(a)

Challenged Counter Offer

2.7(i)(ii)

Challenging Party

2.7(i)(i)

Co-Detailing Right

7.3(a)

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Combination Product

1.62

Commercial Auto Opt-Out Event

9.5(d)

Commercial Budget

7.2

Competing Party

2.7(c)(ii)

Competing Party Second Offer

2.7(c)(ii)

Competing Party Subsequent Offer

2.7(c)(iii)

Controlling Party

8.3(c)

Defense Action

8.3(a)

Detailing Plan

7.3(a)

Development Auto Opt-Out Event

5.2(a)

Development Budget

5.1(b)

Development Plan

5.1(b)

Disclosing Party

13.1

Divestiture or Divest

2.6(b)

Execution Date

Preamble

Effective Date

15.16(a)

Election Notice

8.2(b)(v)

Excess Costs

5.1(c)

Existing Offer

2.7(i)(iii)

Existing Patents

12.3(j)

Extension Activities

8.2(d)

FCPA

1.52

Finance Officer

5.1(c)

Finance Working Group

3.2

First Bid Notice

2.7(c)(i)

First Incyte Counter Offer

2.7(c)(i)

Genus Incyte Prosecuted Patent

3.2(d)(ii)C

Global Branding Strategy

7.4(a)

Global Safety Database

5.5(c)

Incremental Royalty

5.2(c)(iv)

Incyte

Preamble

Incyte Indemnified Parties

11.1

Incyte Prosecuted Patent

8.2(b)(i)

Incyte Subsequent Counter Offer

2.7(c)(iii)

Independent Evaluator

2.7(i)(ii)

Initial Preclinical Budget

4.2(a)

Initial Preclinical Studies

4.2(a)

Initial Study Compounds

4.2(a)

Initiation Notice

2.7(a)

JCC

3.2

JDC

3.2

JMC

3.2

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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JPC

3.2

JSC

3.1(a)

Licensed Arising IP

2.5(b)

Mars

1.58

Manufacturing Transfer

6.2

Naked Patent License

2.2(b)

Non-Authorized US Phase II Study

5.3(d)

Non-Breaching Party

10.2(b)

Non-Controlling Party

8.3(c)

Non-Required Phase IV Studies

1.73

Notice

15.5

Offered Rights

2.7(b)

Payments

9.8(a)

Payment Deficit

5.2(a)

Pharmacovigilance Agreement

5.5(c)

Prosecution Activities

8.2(a)

Receiving Party

13.1

Regulatory Transition

5.3(b)

Required Phase IV Studies

1.73

Retained Compound Transaction

2.7(a)

Retained Product Information

13.1

Royalty Obligations Following Conversion

5.2(c)(iv)

Royalty Term

9.3(b)

Second Incyte Counter Offer

2.7(c)(ii)

Severed Clause

15.12

Specific Incyte Prosecuted Patent

3.2(d)(ii)B

SR Detail Incentives

7.3(b)(i)

Substitute Retained Compound

4.2(d)

[ * ]

10.2(b)

Supporting Memorandum

2.7(i)(iii)

Term

10.1

Third Party Infringement

8.3(a)

Third Party Payments

8.4(c)

Topping Rights

2.7(a)

Unachieved DME

9.2(a)

Viable Term Sheet

2.7(c)(i)

Voting Stock

1.15

Withholding Tax Action

9.8(b)

1.98 Construction .  In construing this Agreement, unless expressly specified otherwise:

(a) references to Sections and Exhibits are to sections of, and exhibits to, this Agreement;

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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(b) except where the context otherwise requires, use of either gender includes the other gender, and use of the singular includes the plural and vice versa;

(c) headings and titles are for convenience only and do not affect the interpretation of this Agreement;

(d) any list or examples following the word “including” shall be interpreted without limitation to the generality of the preceding words;

(e) except where the context otherwise requires, the word “or” is used in the inclusive sense;

(f) all references to “dollars” or “$” or “USD” herein shall mean U.S. Dollars; and

(g) each Party represents that it has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in the drafting hereof.  In interpreting and applying the terms and provisions of this Agreement, the Parties agree that no presumption will apply against the Party which drafted such terms and provisions.

ARTICLE II

LICENSES

2.1 Rights Granted by Calithera to Incyte .   

(a) Subject to the terms of this Agreement, Calithera hereby grants, under the Calithera IP and Calithera’s and its Affiliates’ interests in Joint Arising IP, to Incyte and its Affiliates (but only so long as they remain Affiliates) (i) an exclusive right and license, with the right to sublicense (subject to Section 2.2), to Commercialize (subject to Calithera’s Co-Detailing Right) Licensed Products in the Hematology/Oncology Field in the Territory, (ii) an exclusive right and license, with the right to sublicense (subject to Section 2.2), to manufacture or have manufactured (subject to the Calithera Manufacturing Obligation) Licensed Compounds and Licensed Products for Development and Commercialization in the Hematology/Oncology Field in the Territory and (iii) an exclusive right and license (or co-exclusive with respect to Sections 5.3(a), 5.3(d) and 5.3(e)) , with the right to sublicense (subject to Section 2.2), to research, Develop or have Developed   Licensed Compounds and Licensed Products in the Hematology/Oncology Field in the Territory. Notwithstanding the foregoing license grant, it is understood and agreed that a Licensed Compound that is designated as a Retained Compound pursuant to Section 4.2 will, while such remains a Retained Compound, no longer be a Licensed Compound and no longer subject to the license grant in this Section 2.1(a).

(b) Incyte shall use Commercially Reasonable Efforts to prevent any Licensed Product that is being sold by it or its Affiliates or sublicensees from being sold for use outside the Hematology/Oncology Field.  Without limiting the foregoing, Incyte shall not (i) conduct (or grant rights to any Third Party to conduct) any clinical development of any Licensed Compound

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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or Licensed Product for intended use outside the Hematology/Oncology Field, (ii) actively promote any Licensed Product for intended use outside the Hematology/Oncology Field or (iii) refer to any efficacy data related to any Li censed Compound or Licensed Product in Indications outside the Hematology/Oncology Field in connection with any communications to, or unsolicited requests from, healthcare providers; provided, however, that [ * ] .   

(c) Incyte acknowledges and agrees that (i) certain of the Calithera IP was licensed to Calithera by Mars under the terms of the Mars Agreement, a true and correct copy of which has been provided to Incyte as of the Execution Date and (ii) upon the expiration of the royalty term under the Mars Agreement with respect to any Licensed Product and country, Calithera’s license under that portion of the Calithera Know-How licensed from Mars shall become non-exclusive (as between Calithera and Mars).

(d) Notwithstanding the definition of Hematology/Oncology Field, Incyte understands and agrees that the scope of its sublicense under the Calithera IP that is licensed to Calithera under the Mars Agreement is limited to the field of human healthcare.  If Mars provides notice to Calithera under Section 2.2.4 of the Mars Agreement that it has decided to pursue (or authorize a Third Party to pursue) the in vivo testing, development or commercialization of any arginase inhibitor for use in animal healthcare, then [ * ].

2.2 Sublicenses .  

(a) Subject to the terms and conditions of this Agreement, Incyte shall have the right to grant sublicenses through multiple tiers of sublicensees under the licenses granted in Section 2.1 to its Affiliates and Third Parties; provided that Incyte [ * ] shall obtain Calithera’s prior written consent, which shall not be unreasonably withheld, for any such sublicense granting a Third Party the right to Detail any Licensed Product in the U.S.; and provided further that Incyte shall remain responsible for its obligations under this Agreement and shall be responsible for the performance of the relevant sublicensee, and any such sublicenses shall be consistent with and subject to the applicable terms and conditions of this Agreement.  Incyte shall monitor compliance with and use commercially reasonable efforts to enforce the terms of any sublicense agreements against its sublicensees, and shall require that its sublicensees also use commercially reasonable efforts to enforce the terms of any sublicense agreements with further sublicensees.  Incyte shall provide Calithera with a copy of each executed sublicense agreement which grants Development or Commercialization rights (under which Incyte or any further sublicensee grants a sublicense), within [ * ] after execution thereof, which shall be treated by Calithera as Incyte’s Confidential Information and, without limiting the foregoing, which Calithera shall have the right to provide to Mars in a redacted form to be agreed to by the Parties as Confidential Information (as defined in the Mars Agreement) with respect to which Calithera is the Disclosing Party (as defined in the Mars Agreement), subject to the confidentiality provisions of the Mars Agreement; provided that , upon Incyte’s request, Calithera shall (i) [ * ] and (ii) use reasonable efforts to cause Mars to enter into and execute same; provided further that , [ * ].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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(b) In no event shall Incyte or any Affiliate or sublicensee have the right to grant any sublicense that [ * ] to any Third Party wi thout the prior written consent of Calithera , subject to the further written consent of Mars, which consent shall not be unreasonably withheld, conditioned, or delayed.  Calithera will have the rights set forth in Section 10.2(b) (notwithstanding the cure period set forth therein) with respect to any breach by Incyte or an Affiliate or sublicensee of the preceding sentence [ * ], unless Incyte or its Affiliate or sublicensee terminates such [ * ] after written notice from Calithera.  As used above, [ * ].

2.3 Section 365(n) of the Bankruptcy Code .  All rights and licenses granted under or pursuant to any section of this Agreement, including the licenses granted under this ARTICLE II and the rights granted under Section 4.1(c), are and will otherwise be deemed to be for purposes of Section 365(n) of the United States Bankruptcy Code (Title 11, U.S. Code), as amended (the “ Bankruptcy Code ”), licenses of rights to “intellectual property” as defined in Section 101(35A) of the Bankruptcy Code.  Incyte will retain and may fully exercise all of its respective rights and elections under the Bankruptcy Code.  Incyte, as licensee of such rights under this Agreement, will retain and may fully exercise all of its rights and elections under the Bankruptcy Code or any other provisions of applicable Law outside the United States that provide similar protection for “intellectual property.”  In the event of the commencement of a bankruptcy proceeding by or against Calithera under the Bankruptcy Code or analogous provisions of applicable Law outside the United States, Incyte will be entitled to a complete duplicate of (or complete access to) such intellectual property and all embodiments of such intellectual property, which, if not already in its possession, will be promptly delivered to Incyte upon its written request thereof.  Any agreements supplemental hereto will be deemed to be “agreements supplementary to” this Agreement for purposes of Section 365(n) of the Bankruptcy Code.

2.4 Retained Rights .

(a) No Implied Licenses or Rights .  Except as expressly provided in this Agreement, all rights in and to the Calithera IP, and Calithera’s and its Affiliates’ interests in Joint Arising IP and any other Patent Rights or Know-How of Calithera and its Affiliates, are hereby retained by Calithera and its Affiliates, including Calithera’s rights with respect to Retained Compounds as set forth in Section 2.4(c).  

(b) Other Retained Rights .  Notwithstanding the licenses granted to Incyte pursuant to Section 2.1, Calithera retains the right to practice under the Calithera IP and Joint Arising IP to perform its obligations and exercise its rights under this Agreement and to conduct Calithera Combination Studies as provided in Section 5.3(e).

(c) Rights to Retained Compounds .  Subject to this Section 2.4(c) and Sections 2.7 and 4.2, and notwithstanding the licenses granted Incyte pursuant to Section 2.1, Calithera retains all rights to research, develop, seek regulatory approval for, manufacture and commercialize the Retained Compounds solely in the Non-Hematology/Oncology Field in the Territory.  For clarity, Calithera shall not research, develop, manufacture or commercialize the Retained Compounds or any other Arginase Inhibitors (x) in the Hematology/Oncology Field in

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the Territory (except as expressly provided under this Agreement with respect to Licensed Compounds) or, (y) except as set forth in this Section 2.4(c) with respect to Retained Compounds, outside the Non -Hematology/Oncology Field, in the Territory.    Calithera covenants that it shall use Commercially Reason able Efforts to prevent any Retained Compound that is being sold by it or its Affiliates or sublicensees from being sold for use outside the Non-Hematology/Oncology Field.  Without limiting the foregoing, Calithera shall not (i) conduct (or grant rights to any Third Party to conduct)  any clinical development of any Retained Compound for intended use outside the Non-Hematology/Oncology Field, (ii) actively promote (or grant rights to any Third Party to promote) any Retained Compound for intended use outside the Non-Hematology/Oncology Field and (iii) refer to any efficacy data related to any Retained Compound in indications outside the Non-Hematology/Oncology Field in connection with any communications to, or unsolicited requests from, healthcare providers; provided, however, that Calithera shall have the right to conduct pre-clinical research, excluding IND-enabling studies, with the Retained Compounds outside the Non-Hematology/Oncology Field and outside the Hematology/Oncology Field upon prior written noti ce to Incyte and Incyte’s confirmation that such studies are outside such fields (as applicable).

2.5 Rights Granted by Incyte to Calithera .  

(a) Subject to the terms of this Agreement, Incyte hereby grants to Calithera and its Affiliates (but only so long as they remain Affiliates) a non-exclusive right and license, under Incyte’s solely owned Arising IP and Incyte’s and its Affiliates’ interests in Joint Arising IP, to perform Calithera’s obligations under this Agreement, and to conduct Calithera Combination Studies that are permitted under this Agreement .

(b) Upon written notice to Incyte, Calithera may elect (in its sole discretion) to acquire the license set forth in this Section 2.5(b) under Incyte’s interest in the Arising IP to the extent related solely to manufacturing and formulation and generally applicable to Arginase Inhibitors and not specifically related to the Hematology/Oncology Field (the “ Licensed Arising IP ”), subject to reimbursement by Calithera of (i) [ * ], and (ii) [ * ].  Upon receipt of such notice from Calithera, Incyte shall provide Calithera with a report of its calculation of Calithera’s share of such Development Costs in accordance with the preceding sentence, and Incyte shall respond to any reasonable questions or information requested by Calithera in connection therewith, and upon further written notice that Calithera accepts such amount, Incyte shall provide to Calithera an invoice therefor that is payable within [ * ].  Effective upon Calithera’s timely payment of such invoice, Incyte hereby grants to Calithera and its Affiliates (but only so long as they remain Affiliates) an exclusive, perpetual, irrevocable, fully-paid, royalty-free right and license, with the right to sublicense through multiple tiers, under Incyte’s and its Affiliates’ interest in the applicable Licensed Arising IP, to manufacture and have manufactured and formulate, for purposes of the development, use, sale, offer for sale and import of Retained Compounds and products containing Retained Compounds in the Non-Hematology/Oncology Field in the Territory.  Concurrent with the effectiveness of any such license, upon written request of Calithera, Incyte hereby grants to Calithera, solely for the purpose of developing and commercializing Retained Compounds, a Right of Reference or Use to any and all Regulatory

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Documentation Controlled by Incyte relating solely to Licensed Compounds a nd Licensed Products to the extent related to manufacturing and formulation and generally applicable to Arginase Inhibitors and not specifically related to the Hematology/Oncology Field , and agrees to sign, and cause its Affiliates to sign, any instruments reasonably requested by Incyte in order to effect such grant , subject to reimbursement by Calithera of (A) [ * ], and (B) [ * ] .

2.6 Exclusivity .  

(a) For the duration of the Term, neither Party nor its Affiliates shall (or shall authorize any Third Party to) clinically Develop or Commercialize outside of this Agreement any Licensed Compound, Licensed Product or other Arginase Inhibitor; provided that the foregoing limitation shall not apply to Excluded Compounds or Calithera’s Development or Commercialization of Retained Compounds. During the Term, Calithera shall not itself or through any Affiliate, or grant any Third Party any rights to, Develop, manufacture or Commercialize any Licensed Compound or Licensed Product (i) outside the Hematology/Oncology Field or (ii) except as expressly set forth in this Agreement, in the Hematology/Oncology Field.  

(b) In the event that a Party or any of its Affiliates, either through its own efforts or by acquisition of such rights (whether through merger, acquisition or similar transaction), obtains the rights to an Arginase Inhibitor that would cause such Party to breach Section 2.6(a), then such Party shall elect one of the following upon written notice to the other Party within thirty (30) days after such rights are first obtained: (i) [ * ]; (ii) [ * ]; (iii) [ * ]; or (iv) [ * ]. [ * ].

2.7 Incyte [ * ] Regarding Retained Compound Transaction .

(a) Retained Compound Transaction; Initiation Notice .  During the periods set forth in Section 2.7(h), Calithera shall not enter into or seek to enter into a Retained Compound Transaction for [ * ].  As used in this Section 2.7, a “ Retained Compound Transaction ” means     [ * ], but excluding: (x) [ * ] and (y) [ * ].

(b) [ * ]

(c) [ * ]

(d) [ * ]

(e) [ * ]

(f) [ * ]

(g) [ * ]

(h) [ * ]

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(i) [ * ]

(j) [ * ]

2.8 No Implied Licenses; Negative Covenant .  Except as set forth in this Agreement, neither Party shall acquire any license or other intellectual property interest, by implication or otherwise, under or to any Intellectual Property Rights owned or controlled by the other Party. Neither Party shall, nor shall it permit any of its Affiliates or sublicensees to, practice any Patent Rights or Know-How licensed to it by the other Party outside the scope of the licenses granted to it under this Agreement.

2.9 Subcontractors .  Each Party may perform its research, Development, manufacturing and Commercialization activities under this Agreement through one or more subcontractors, provided that (a) such Party will remain responsible for the work allocated to, and payment to, such subcontractors to the same extent it would if it had done such work itself; (b) each subcontractor undertakes in writing obligations of confidentiality and non-use regarding Confidential Information consistent with this Agreement, and (c) each subcontractor agrees in writing to assign all intellectual property developed in the course of performing any such work to such Party, and provided further that [ * ].

ARTICLE III

GOVERNANCE

3.1 Joint Steering Committee .

(a) Establishment .  The Parties shall establish a joint steering committee (“ JSC ”) within ten (10) days after the Effective Date that will have the responsibility for the overall coordination and oversight of the Parties’ activities under this Agreement.  As soon as practicable following the Effective Date (but in no event more than ten (10) days following the Effective Date), each Party shall designate its initial three (3) representatives on the JSC.  The JSC may increase or decrease the number of representatives that each Party may appoint on the JSC, provided that each Party has an equal number of representatives on the JSC.  Each Party’s representatives and any substitute for a representative shall be bound by the obligations of confidentiality set forth in ARTICLE XIII.  A representative from Incyte shall act as the chairperson of the JSC.  The chairperson shall not have any greater authority than any other representative on the JSC and shall conduct the following activities of the JSC: (i) calling meetings of the JSC; (ii) preparing and issuing minutes of each such meeting within thirty (30) days thereafter (which minutes will be deemed approved unless any JSC member objects to the accuracy thereof  ( provided that any such objection shall have no bearing or effect on the effectiveness of any decisions made by Incyte in accordance with Section 3.5) within ten (10) days after receipt); (iii) ensuring that any decision-making delegated to the JSC is carried out in accordance with Section 3.5; and (iv) preparing and circulating an agenda for the upcoming meeting.  Each Party shall be free to change its representatives on notice to the other or to send a substitute representative to any JSC meeting; provided that each Party shall ensure that, at all

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times during the existence of the JSC, its representatives on the JSC are appropriate in terms of expertise and seniority (including at least one member of senior management) for the then-current stage of Development and Commercialization of the Licens ed Compounds and Licensed Products and have the authority to bind such Party with respect to matters within the purview of the JSC.

(b) Responsibilities .  Subject to Section 3.5(b), the JSC shall have responsibility for: (i) the general oversight of the collaboration, including review and discussion of, and resolution of any dispute at the JDC with respect to, the Development Plan and Development Budget; (ii) review and discussion of, and resolution of any dispute at the JDC with respect to, each amendment to the Initial Preclinical Budget, Initial Preclinical Studies, Development Plan and Development Budget referred from the JDC; (iii) if Calithera and Incyte are sharing Net Profits and Net Losses with respect to Net Sales of Licensed Product in the United States pursuant to Section 9.5, review, discussion and approval of each Commercial Budget and material amendment thereto referred from the JCC (or Incyte if there is no JCC), and, if Calithera has exercised its Co-Detailing Right, discussing the high-level strategic plan and goals for the Commercialization of Licensed Product and review of the Detailing Plan and each amendment thereto referred from the JCC; (iv) periodic review of the overall goals and strategy of the Development and Detailing activities conducted hereunder in the Hematology/Oncology Field; (v) review of all information, data, test results and Regulatory Documentation relating to any terminated Retained Compounds that are provided pursuant to Section 4.2; (vi) resolving any disputes arising within the JDC, JCC, JMC or any other subcommittee or working group established pursuant to Section 3.2 as provided in Section 3.5, and (vii) performing such other functions as appropriate to further the purposes of this Agreement, as mutually agreed upon by the Parties in writing or as allocated under this Agreement.

(c) Development and Approval .  Notwithstanding the establishment of the JSC, but subject to Section 3.5, Incyte shall have the sole right to prepare and approve the Detailing Plan and Global Branding Strategy, including any amendments thereto.

3.2 Subcommittees; Working Groups; Alliance Manager .  The JSC may establish and disband (provided such decision is made unanimously by the members of the JSC without either Party having final say) such subcommittees as deemed necessary by the JSC including based on the then-current stage of Development and Commercialization.  Each such subcommittee shall consist of the same number of representatives designated by each Party, which number shall be mutually agreed by the Parties.  Each Party shall be free to change its representatives on notice to the other or to send a substitute representative to any subcommittee meeting; provided that each Party shall ensure that, at all times during the existence of any subcommittee, its representatives on such subcommittee are appropriate in terms of expertise and seniority for the then-current stage of Development and Commercialization of the Licensed Compounds and Licensed Products in the Hematology/Oncology Field and have the authority to direct and approve the actions of such Party with respect to matters within the purview of the relevant subcommittee.  Each Party’s representatives and any substitute for a representative shall be bound by the obligations of confidentiality set forth in ARTICLE XIII.  Each subcommittee shall report to the

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JSC, and any decisions that remain unresolved by such subcommittee shall be escalated to the JSC for resolution in accordance with Section 3.5 .  The initial subcommittees of the JSC will be the Joint Development Committee (“ JDC ”), and subject to the terms of Section 3.2(b) , the Joint Commercialization Committee (“ JCC ”), and the Joint Manufacturing Committee (“ JMC ”) and the Joint Patent Committee (“ JPC ”). The JSC can modify the structure of a ny subcommittee to create project-specific or multi-project specific subcommittees as necessary.  Additionally, the JSC may form working groups to facilitate specific activities in connection with this Agreement, which such working groups will have no deci sion-making authority.  The initial working group will be the Finance Working Group (the “ Finance Working Group ”).   Each Party (acting through the JSC) shall appoint a person(s) who shall oversee the affairs between the Parties for all matters related to m eetings of each subcommittee of the JSC and shall have such other responsibilities as the Parties may agree in writing after the Execution Date (each, an “ Alliance Manager ”).  Each Party may replace its Alliance Manager at any time by notice in writing to the other Party.   

(a) Joint Development Committee .

(i) The JDC will have the responsibility for the overall coordination and oversight of the Development activities for the Licensed Compounds and Licensed Products.  As soon as practicable following the Ef fective Date (but in no event more than ten (10) days following the Effective Date), each Party shall designate its initial three (3) representatives on the JDC.  Incyte shall appoint a person from among its representatives on the JDC to serve as the chairperson of the JDC.  The chairperson shall not have any greater authority than any other representative on the JDC and shall conduct the following activities of the JDC: (A) calling meetings of the JDC; (B) preparing and issuing minutes of each such meeting within thirty (30) days thereafter (which minutes will be deemed approved unless any JDC member objects to the accuracy thereof ( provided that any such objection shall have no bearing or effect on the effectiveness of any decisions made by Incyte in accordance with Section 3.5) within ten (10) days after receipt); (C) preparing and circulating an agenda for the upcoming meeting; and (D) ensuring that any decision-making delegated to the JDC is carried out in accordance with Section 3.5, including, as applicable, escalating any dispute to the JSC.  The JDC shall automatically terminate (A) upon the effectiveness of the exercise by Calithera of the Co-Development Opt-Out Right or an Auto Opt-Out Event or (B) if there is no longer at least [ * ] Licensed Compound or Licensed Product being Developed under this Agreement.

(ii) The JDC shall have responsibility for (A) reviewing and approving the Development Plan and Development Budget and each amendment thereto (in each case, initial drafts of which shall be prepared by Incyte) and presenting them to the JSC for resolution of any dispute with respect thereto; (B) overseeing, reviewing and coordinating the conduct of activities under the Development Plan; (C) as applicable, overseeing, reviewing and coordinating the work being done under the Development Plan, including reviewing and discussing any reports provided by the Parties; (D) determining the assay for use in measuring the arginase inhibitory activity of any small molecule compound to determine whether such compound is an Arginase Inhibitor; provided that the initial assay shall be determined by the JDC within [ * ] of

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the Effective Date and may not thereafter be changed without the Parties’ written consent; (E) determining whether a Phase II Study is a Non-Authorized US Phase II Study; (F) [ * ]; (G) pursuant to Section 5.3(a) and 5.3(d) , [ * ]; (H) discussing any material regulatory communications with and submissions to Regulatory Authorities with respect to Licensed Compounds and Licensed Products in the Hematology/Oncology Field in the Territory; and (J) reviewing and approving an y amendments to the Initial Preclinical Budget and Initial Preclinical Studies and presenting them to the JSC for resolution of any dispute with respect thereto.

(b) Joint Commercialization Committee .  

(i) The JCC shall oversee Commercialization activities that are related to the Detailing of Licensed Product in the United States as long as (A) Calithera has not exercised the Co-Development Opt-Out Right, (B) Calithera has exercised its Co-Detailing Right in accordance with the time periods set forth in Section 7.3(a) and (C) an Auto Opt-Out Event has not occurred.  As soon as practicable following the date upon which Calithera has validly exercised its Co-Detailing Right (but in no event more than thirty (30) days following such date), each Party shall designate its initial three (3) representatives on the JCC.  Incyte shall appoint a person from among its representatives on the JCC to serve as the chairperson of the JCC.  The chairperson shall not have any greater authority than any other representative on the JCC and shall conduct the following activities of the JCC: (A) calling meetings of the JCC; (B) preparing and issuing minutes of each such meeting within thirty (30) days thereafter (which minutes will be deemed approved unless any JCC member objects to the accuracy thereof ( provided that any such objection shall have no bearing or effect on the effectiveness of any decisions made by Incyte in accordance with Section 3.5) within ten (10) days after receipt); (C) preparing and circulating an agenda for the upcoming meeting; and (D) ensuring that any decision-making delegated to the JCC is carried out in accordance with Section 3.5.  The JCC shall automatically terminate (A) upon the effectiveness of the exercise by Calithera of the Co-Development Opt-Out Right or an Auto Opt-Out Event; (B) if Calithera does not exercise its Co-Detailing Right in accordance with the time periods set forth in Section 7.3(a); (C) if Incyte terminates Calithera’s Co-Detailing Right pursuant to Section 7.3 or 15.3; and (D) if there is no longer a Licensed Product being co-Detailed in the United States by the Parties under this Agreement, whichever is earliest of (A)-(D).

(ii) The JCC shall be responsible for: (A) overseeing, reviewing and coordinating the Detailing of the Licensed Product in the H ematology/Oncology Field in the United States; (B) discussing the overall Commercialization strategy and goals with respect to the Detailing Plan, which shall be presented to the JCC by Incyte, and applying the Global Branding Strategy and each amendment thereto (in each case, initial drafts of which shall be prepared by Incyte and presented to the JCC for review) to the Licensed Product in the United States, including reviewing all training and promotional materials for Licensed Product in the U.S.; (C) setting overall strategic objectives and plans related to Detailing Licensed Product in the H ematology/Oncology Field in the United States; (D) reviewing and commenting on the Detailing Plan and each amendment thereto (in each case, initial drafts of which shall be prepared by Incyte) and presenting them to the JSC for review; (E) reviewing Detailing issues

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for the Licensed Product; (F) providing a forum for the Parties to discuss the Detailing of the Licensed Product in the H ematology/Oncology Field in the United States; (G) discussing, reviewing and ref erring to the JSC for approval the Commercial Budget and any material amendments to the Commercial Budget, which shall be presented to the JCC by Incyte (in each case, an initial draft of which shall be prepared by Incyte and presented to the JCC for revie w); and (H) such other responsibilities as may be assigned to the JCC pursuant to this Agreement or as may be mutually agreed upon by the Parties from time to time or allocated by the JSC.

(c) Joint Manufacturing Committee .  The JMC will have the responsibility for the overall coordination and oversight of the manufacturing technology transfer pursuant to Section 6.4.  As soon as practicable following the Effective Date (but in no event more than ten (10) days following the Effective Date), each Party shall designate its initial three (3) representatives on the JMC.  Incyte shall appoint a person from among its representatives on the JMC to serve as the chairperson of the JMC.  The chairperson shall not have any greater authority than any other representative on the JMC and shall conduct the following activities of the JMC: (A) calling meetings of the JMC; (B) preparing and issuing minutes of each such meeting within thirty (30) days thereafter (which minutes will be deemed approved unless any JMC member objects to the accuracy thereof ( provided that any such objection shall have no bearing or effect on any decisions made by Incyte in accordance with Section 3.5) within ten (10) days after receipt); (C) preparing and circulating an agenda for the upcoming meeting; and (D) ensuring that any decision-making delegated to the JMC is carried out in accordance with Section 3.5.  The JMC shall automatically terminate upon the completion of the manufacturing technology transfer pursuant to Section 6.4.

(d) Joint Patent Committee .

(i) The JPC will be responsible for determining the strategy for and overseeing the preparation, filing, prosecution and maintenance of the Calithera Owned Patent Rights, the Incyte Patent Rights and the Joint Patent Rights .  As soon as practicable following the Effective Date (but in no event more than ten (10) days following the Effective Date), each Party shall designate its initial one (1) representative on the JPC.  Incyte’s representative will serve as the chairperson of the JPC.  The chairperson shall not have any greater authority than any other representative on the JPC and shall conduct the following activities of the JPC: (A) calling meetings of the JPC; (B) preparing and issuing minutes of each such meeting within thirty (30) days thereafter (which minutes will be deemed approved unless Calithera’s JPC member objects to the accuracy thereof ( provided that any such objection shall have no bearing or effect on the effectiveness of any decisions made by either Party in accordance with Section 3.2(d)(ii)) within ten (10) days after receipt); and (C) preparing and circulating an agenda for the upcoming meeting.

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(ii) Actions to be taken by the JPC shall be taken only following a unanimous vote, with each Party having [ * ] vote.  If the JPC fails to reach unanimous agreement on a matter before it for decision for a period in excess of [ * ] days (or a shorter period if such matter is reasonably deemed exigent by either Party), then the matter will be decided as follows:

A. [ * ];

B. [ * ]; and

C. [ * ].

3.3 Committee Meetings .  Commencing in the first Calendar Quarter of 2017, the JSC and each of the subcommittees that have been established shall each hold at least one (1) meeting per Calendar Quarter at such times during such Calendar Quarter as the Parties elect to do so (such consent not to be unreasonably withheld, conditioned or delayed).  Except where a Party fails to appoint a member or members to the JSC or its subcommittees or fails to participate in meetings of the JSC or its subcommittees pursuant to Section 3.6, meetings of the JSC and the subcommittees, respectively, shall be effective only if at least one (1) representative of each Party is present or participating.  The JSC and its subcommittees may meet either (i) in person at either Party’s facilities or at such locations as the Parties may otherwise agree or (ii) by audio or video teleconference; provided that no less than one (1) meeting during each Calendar Year shall be conducted in person.  Other representatives of each Party involved with the Licensed Compound or Licensed Product may attend meetings as non-voting participants, subject to the confidentiality provisions set forth in ARTICLE XIII.  Additional meetings of the JSC and its subcommittees may also be held with the consent of each Party, or as required under this Agreement, and neither Party shall unreasonably withhold its consent to hold such additional meetings.  Each Party shall be responsible for all of its own expenses incurred in connection with participating in all such meetings.

3.4 Authority .  The JSC and any subcommittee shall have only the powers assigned expressly to it in this ARTICLE III and elsewhere in this Agreement, and shall not have any power to amend, modify or waive compliance with this Agreement, or to impose any obligations on a Party that are inconsistent with this Agreement, unless agreed otherwise by the Parties in writing.  In furtherance thereof, each Party shall retain the rights, powers and discretion granted to it under this Agreement and no such rights, powers or discretion shall be delegated or vested in the JSC or any subcommittee unless such delegation or vesting of rights is expressly provided for in this Agreement or the Parties expressly so agree in writing.

3.5 Decisions .  

(a) Subject to the provisions of this Section 3.5, actions to be taken by the JDC, JCC, JMC, JPC or any other subcommittees of the JSC shall be taken only following a unanimous vote, with each Party having one (1) vote.  If any subcommittee fails to reach

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unanimous agreement on a matter bef ore it for decision for a period in excess of five (5) days (or a shorter period if such matter is reasonably deemed exigent by either Party), such matter will be referred to the JSC for resolution under Section 3.5 (b) ; provided that all matters within the purview of the JPC will be decided pursuant to Section 3.2(d)(ii) .

(b) If a matter or dispute is referred by a subcommittee (other than the JPC) to the JSC, it shall use good faith efforts to promptly resolve such matter.  If the JSC is unable to reach unanimous agreement on any matter for which it has decision-making authority or any matter referred to it by a subcommittee within ten (10) days (i) of such deadlock, in the case of a matter for which the JSC has decision-making authority, or (ii) after such referral from a subcommittee, then in each case of (i) and (ii), [ * ] .  

3.6 Finance Working Group .  F ollowing the Effective Date, the JSC shall establish a Finance Working Group, consisting of representatives from each Party, including such Party’s Finance Officer.  The Finance Working Group shall act as a forum for the discussion and exchange of information between the Parties relating to Development Costs, the Development Budget, Allowable Expenses and the Commercial Budget, Manufacturing Costs, Net Profits and Net Losses.  The Finance Working Group shall meet with such frequency as it determines appropriate depending on the level of activity under this Agreement, and shall have no decision-making authority unless expressly delegated such authority by the JSC.

3.7 Committee Membership .

(a) Appointment is a Right .  The appointment of members of the JSC and any subcommittees of the JSC is a right of each Party and not an obligation and shall not be a “deliverable” as referenced in any existing authoritative accounting literature.  Each Party shall be free to determine not to appoint members to the JSC or any subcommittee of the JSC.

(b) Consequence of Non-Appointment .  If a Party does not appoint members of the JSC or any subcommittee of the JSC, it shall not be a breach of this Agreement, nor shall any consideration be required to be returned, and unless and until such members are appointed, the Parties shall, subject to the ultimate decision-making authority of Incyte pursuant to Section 3.1(c) and 3.5 applied mutatis mutandis, discharge the decision-making responsibilities of the JSC or any subcommittee thereof directly.   

ARTICLE IV

INFORMATION TRANSFER; ARGINASE INHIBITOR POOL

4.1 Information Transfer .

(a) Initial Information Transfer to Incyte .  (i) Within a reasonable period not to exceed fifteen (15) Business Days after the Effective Date, Calithera shall make available to Incyte, in a mutually-agreed upon format and without further financial consideration, the Calithera Know-How in existence as of the Effective Date and the Regulatory Documentation

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and pharmacovigilance information related to any Development activities in existence with respect to Licensed Compounds in the Hematology/Oncology Field as of the Effective Date, in accordance with the initial information transfer plan set forth in Exhibit 4.1(a) , and (ii) from the Effective Date through the later of the conclusion of the CB-1 158-101 Study or the second anniversary of the Effective Date, Calithera shall (x) make its relevant scientific and technical personnel reasonably available to Incyte to answer any questions or provide instruction as reasonably requested by Incyte concerni ng the information delivered pursuant to this Section 4.1 , and (y) use reasonable efforts to facilitate discussions between Incyte and any academic collaborators Calithera is working with on any Licensed Compounds in the Hematology/Oncology Field.

(b) Continuing Information Transfer .  At least quarterly during the Term until the earlier of (a) the completion of the Development Plan, as may be amended (or at such other frequency as determined by the JSC) or (b) the dissolution of the JDC, (i) each Party shall make available to the other and to the JDC, in a mutually agreed-upon format, material data generated under the Development Plan (and any other material information related thereto as may be reasonably requested by the other Party) ; and (ii) Calithera shall make available to Incyte any additional Calithera IP not previously made available to Incyte.

(c) Right of Reference or Use .  Calithera hereby grants to Incyte, solely for the purposes set forth in this Agreement, a Right of Reference or Use to any and all Regulatory Documentation Controlled by Calithera relating to Licensed Compounds and Licensed Products and existing as of the Execution Date or generated from any Clinical Trial commenced by Calithera prior to the Execution Date with respect to the Licensed Compounds, and agrees to sign, and cause its Affiliates to sign, any instruments reasonably requested by Incyte in order to effect such gran t.  Incyte hereby grants to Calithera, solely for the purpose of conducting Calithera Combination Studies that are not included within and conducted under the Development Plan, a Right of Reference or Use to any and all Regulatory Documentation Controlled by Incyte relating to Licensed Compounds and Licensed Products necessary or useful for the performance of such Calithera Combination Studies, and Incyte agrees to sign, and cause its Affiliates to sign, any instruments reasonably requested by Incyte in order to effect such grant.

4.2 Arginase Inhibitor Pool .  

(a) Initial Preclinical Studies .  Commencing promptly after the Effective Date, Incyte and Calithera (to the extent allocated to Calithera thereunder) shall conduct the studies set forth on Exhibit 4.2(a) under the heading “Initial Preclinical Studies and CMC Activities” in accordance with the budget exchanged between the Parties via email prior to the Execution Date, as each may be amended from time to time by the JDC (such studies, the “ Initial Preclinical Studies ” and such budget, the “ Initial Preclinical Budget ”), in order to generate additional information for use by Incyte to select and designate the initial Back-up Licensed Compound and for use by Calithera to select and designate the initial Retained Compound, all in accordance with Section 4.2(b).  Without limiting the foregoing, the Initial Preclinical Budget

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exchanged between the Parties via email prior to the Execution Date and the Initial Preclinical Studies agreed to by the Parties as of the Execution Date were preliminary in na ture and shall be finalized by the JDC within [ * ] after the Effective Date.  The Initial Preclinical Studies consist of (i) [ * ] and (ii) [ * ] . The Parties shall use reasonable efforts to complete the Initial Preclinical Studies within [ * ] after the Effective Date, or such other period as is necessary for their completion and mutually agreed to by the Parties in writing.  The costs of the Initial Preclinical Studies, to the extent materially consistent with the Initial Preclinical Budget, shall be [ * ], subject to the remainder of this Section 4.2 .  On an ongoing basis during the conduct of the Initial Preclinical Studies, each Party shall provide the other Party with access to all information, data and test results of such Initial Preclinical Studies, which such information, data and test results, for clarity, shall be Arising IP and owned by the Parties in accordance with Section 8.1 .   

(b) Designation of Initial Back-up Licensed Compound and Initial Retained Compound .  Promptly after completion of the Initial Preclinical Studies, but in no event later than [ * ] after the availability of data from all studies within the Initial Preclinical Studies, Incyte shall designate the initial Back-up Licensed Compound (which for clarity may be an Initial Study Compound or a different Arginase Inhibitor in the Arginase Inhibitor Pool) by written notice to Calithera, whereupon such Back-up Licensed Compound shall be removed from the Arginase Inhibitor Pool.  Within [ * ] thereafter, Calithera shall have the right to designate one (1) Arginase Inhibitor (which for clarity may be an Initial Study Compound, but must exclude CB-1158 and the initial Back-up Licensed Compound) from the then-existing Arginase Inhibitor Pool as a Retained Compound for development and commercialization in the Non-Hematology/Oncology Field, by written notice to Incyte, whereupon such Retained Compound shall be removed from the Arginase Inhibitor Pool .  When Calithera designates the initial Retained Compound, then Calithera shall [ * ], within [ * ]; provided that Incyte shall [ * ].   Incyte shall have the right to designate additional or substitute Back-up Licensed Compounds pursuant to Sections 4.2(c) and 4.2(g), and Calithera shall have the right to designate additional Retained Compounds and Substitute Retained Compounds pursuant to Sections 4.2(c) and 4.2(d).

(c) Selection of Second Back-up Licensed Compound and back-up Retained Compounds .  At any time following designation of the initial Retained Compound pursuant to Section 4.2(b), Incyte shall have the right to select [ * ] Arginase Inhibitor in the then-current Arginase Inhibitor Pool (i.e., in addition to the Lead Licensed Compound or Back-up Licensed Compound) [ * ] on written notice to Calithera.  Within [ * ] thereafter, Calithera shall have the right to designate [ * ] back-up Retained Compounds by written notice to Incyte, which such Retained Compounds, for so long as they remain back-up Retained Compounds and not the lead Retained Compound, shall be subject to Incyte’s rights under Section 4.2(e).  When Calithera designates the back-up Retained Compounds, then Calithera shall [ * ] within [ * ]; provided that Incyte shall [ * ].  

(d) Selection of Substitute Retained Compounds .  In the event that Calithera elects to terminate research or development of one of the then-currently designated Retained Compounds during the Term, it shall provide Incyte with prompt written notification thereof.  

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Thereafter, (i) Calithera shall immediately cease all work on such Retained Compound (except as otherwise permitted under this Agreement or as necessary to wind down any then-ongoing studies) and [ * ] and, effective upon Incyte’s receipt of such notice, such Retained Compound shall no longer be designated a Retained Compound and will instead be returned to the Arginase Inhibitor Pool for possible selection by Incyte as a Licensed Compound; and (ii) Calithera shall have the right to design ate an Arginase Inhibitor from the then-current Arginase Inhibitor Pool (for clarity, excluding the then-current Lead Licensed Compound and Back-up Licensed Compounds) as a substitute for such terminated compound and designate such new Arginase Inhibitor a s a Retained Compound (any such compound, a “ Substitute Retained Compound ”) on written notice to Incyte; provided that the total number of Arginase Inhibitors designated as Retained Compounds at any given time shall not ever exceed [ * ].  Notwithstanding the foregoing, prior to designating any Arginase Inhibitor as a Substitute Retained Compound, Calithera shall [ * ], C alithera shall be free to select any one of such potential Substitute Retained Compounds as a Substitute Retained Compound on written notice to Incyte.

(e) Incyte’s Right to Convert a Retained Compound into a Back-up Licensed Compound .  At any time during the [ * ] following the Effective Date, Incyte shall have the right to (i) terminate its Development of a Back-up Licensed Compound, subject to Section 4.2(g), and (ii) substitute for such terminated compound a back-up Retained Compound as a newly designated Back-up Licensed Compound, on written notice to Calithera, upon which notice such back-up Retained Compound shall no longer be a Retained Compound and Calithera shall have the right to designate a Substitute Retained Compound in accordance with Section 4.2(d), as though the development of such back-up Retained Compound had been terminated by Calithera.  If Incyte selects such back-up Retained Compound as a Back-up Licensed Compound, Incyte shall reimburse [ * ], within [ * ] after receipt of an invoice therefor from Calithera.  The Back-up Licensed Compound terminated by Incyte shall be returned promptly to the Arginase Inhibitor Pool pursuant to Section 4.2(g), and shall be available for Calithera to select as [ * ] Retained Compounds pursuant to Section 4.2(d); provided, that Incyte shall not have the ability to re-select such terminated Back-up Licensed Compound pursuant to Section 4.2(d).

(f) Additions to Arginase Inhibitor Pool .  

(i) From time to time during the Term, Calithera (A) will submit any new Arginase Inhibitors Controlled by Calithera (in addition to those set forth on Exhibit 1.6) into the Arginase Inhibitor Pool, or (B) may, subject to Section 4.2(c), terminate research or development of one of its Retained Compounds and return such compounds to the Arginase Inhibitor Pool as a Licensed Compound, and (C) promptly after submitting or designating (as applicable) an Arginase Inhibitor or Retained Compound (as applicable) for addition or return to the Arginase Inhibitor Pool, update Exhibit 1.6 to provide Incyte with a list of the compounds in the then-current Arginase Inhibitor Pool and provide Incyte with access to all information, data, test results and Regulatory Documentation in the Calithera Know-How (that has not been previously provided to Incyte, [ * ]) with respect to such Arginase Inhibitors or any Retained Compound the research or development of which was terminated in accordance with clause (B) above (as applicable) and returned to the Arginase Inhibitor Pool.  All such information, data or

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test results, whether or not so marked, will be Confidential Information of Calithera, and Incyte shall treat such information, data or test res ults in accordance with the confidentiality provisions of this Agreement.   

(ii) From time to time during the Term, Incyte (A) [ * ] (B) may terminate research or development of one or more Licensed Compounds and return such compounds to the Arginase Inhibitor Pool, and (C) promptly after [ * ] for [ * ] return to the Arginase Inhibitor Pool, update Exhibit 1.6 to provide Calithera with a list of the compounds in the then-current Arginase Inhibitor Pool and provide Calithera with access to any information, data or test results generated by or on behalf of Incyte with respect to such Arginase Inhibitors that has not been previously provided to Calithera.  Upon such [ * ] return, Calithera may select such compound as a Retained Compound in accordance with Section 4.2(d); provided that [ * ]. All such information, data or test results provided by or on behalf of Incyte, whether or not so marked, will be Confidential Information of Incyte, and Calithera shall treat such information, data or test results in accordance with the confidentiality provisions of this Agreement, except to the extent Calithera designates such Arginase Inhibitor as a Retained Compound pursuant to Section 4.2(d), in which case Calithera shall, upon its written request to Incyte, have all rights to access and use such information and data that is generally applicable to Arginase Inhibitors and not specific to the Hematology/Oncology Field in the development and commercialization of such compound, [ * ].

(g) Maintenance of a Lead and Back-up Licensed Compounds .  During the Term, Incyte shall maintain one (1) Lead Licensed Compound and have the right to maintain up to [ * ] Back-up Licensed Compounds for Development in the Hematology/Oncology Field, subject to Sections 4.2(a)-4.2(d).  For clarity, subject to such Sections, following the Parties’ initial selection of compounds under Section 4.2(c), Incyte shall always have the right to terminate any Lead Licensed Compound or Back-up Licensed Compound, return such compound to the Arginase Inhibitor Pool, and replace such terminated compound with a new Lead Licensed Compound or Back-up Licensed Compound from the Arginase Inhibitor Pool without limitation  and in its sole discretion by written notice to Calithera, provided that (i) [ * ] and (ii) [ * ].   D uring the Term, Calithera covenants that the then-current Lead Licensed Compound and Back-up Licensed Compounds of Incyte will at all times be designated by Calithera [ * ].

ARTICLE V

DEVELOPMENT; REGULATORY MATTERS

5.1 Conduct of Development Activities .

(a) General .  Subject to the terms and conditions of this Agreement, including the Development Plan, Incyte shall have responsibility for the research and Development of Licensed Compounds and Licensed Products in the Hematology/Oncology Field in the Territory, and the cost and expense of conducting such activities shall be borne by each Party in accordance with its Co-Development Funding Share Obligation.  Each Party (as applicable) will use Commercially Reasonable Efforts to carry out the research and Development activities allocated

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to it under this ARTICLE V and the Development Plan.   Incyte shall use Commercially Reasonable Efforts to Develop and seek Regulatory Approval for at least one (1) Licensed Product in the Major Markets.   Each Party shall conduct , and shall cause its Affiliates and sublicensees to conduct, all Development of Licensed Products in a good scientific manner and in compliance in all material respects with applicable Law.

(b) Development Plan and Development Budget .  All Development of Licensed Compounds and Licensed Products in the Hematology/Oncology Field shall be governed by a clinical Development plan that describes the proposed overall program of Development for the Licensed Compounds and Licensed Products through Regulatory Approval in the Hematology/Oncology Field in the Territory, along with the strategy for seeking Regulatory Approval of Licensed Products (the “ Development Plan ”).  The Development Plan shall have an associated annual budget (“ Development Budget ”), as well as a preliminary estimate of Development Costs for the two (2) years immediately following the twelve (12) month period included in such annual Development Budget which is provided for informational purposes only.  For clarity, the Parties acknowledge that the Development Budgets for the following years may not resemble or reflect the preliminary estimate of Development Costs provided for the two (2) years immediately following the twelve (12) month period included in such annual Development Budget.  The initial Development Plan is attached hereto as Exhibit 5.1(b) (and same may be amended from time to time during the Term by the JDC).  The initial Development Budget exchanged between the Parties via email prior to the Execution Date and the initial Development Plan agreed to by the Parties as of the Execution Date were preliminary in nature and shall be finalized by the JDC within thirty (30) days after the Effective Date.  The Development Plan and Development Budget will be updated on at least an annual basis. Subject to review, comment and approval (as applicable) by the JDC and JSC, in accordance, in each case of the following subsections (i) and (ii), with ARTICLE III, Incyte shall have (i) the sole right and responsibility for preparing the Development Plan and Development Budget and amendments thereto for submission to the JDC and (ii) final decision-making authority over all decisions with respect to the Development Plan, Development Budget and all research and Development activities with respect to Licensed Compounds and Licensed Products in the Territory .

(c) Reconciliation and Payment of Development Costs .  Each Party shall be responsible for its Co-Development Funding Share Obligation.  Within [ * ] following the end of each Calendar Quarter during the Term, each Party shall prepare and deliver to a finance officer designated by Incyte and a finance officer designated by Calithera (the “ Finance Officers ”) a quarterly written report detailing the Development Costs such Party incurred during such Calendar Quarter; provided that each Party shall prepare and deliver to the Finance Officers an estimate of such quarterly report within [ * ] following the end of each Calendar Quarter during the Term.  Each Party shall submit any invoices or other supporting information reasonably requested by the other Party related to the Development Costs incurred by such Party and included in its report within [ * ] after its receipt of such request; provided, that a Party shall only be obligated to provide invoices or other supporting information with respect to expenses in excess of [ * ], unless such invoices or other information is expressly required of the other Party

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by such other Party’s auditors in connection with a financial audit of such other Party.  Within    [ * ] after receipt of the Parties’ quarterl y reports or, if later, any requested supporting information, the Finance Working Group shall confer and calculate the total Development Costs incurred by the Parties during such Calendar Quarter.  If the Finance Working Group determines that (x) Calithera incurred more than thirty percent (30%) of the total Development Costs incurred during such Calendar Quarter, Incyte shall remit payment to Calithera for the excess portion of such costs, or (y) Calithera incurred less than thirty percent (30%) of the tot al Development Costs incurred during such Calendar Quarter, Incyte shall issue an invoice to Calithera for the difference between the thirty percent (30%) of such costs Calithera is obligated to incur as part of its Co-Development Funding Share Obligation and the Development Costs it actually incurred during such Calendar Quarter.  Each Party (as applicable) shall pay all amounts payable under this Section 5.1(c) within [ * ] after determination of the amount so due or its receipt of an invoice therefor (as applicable), provided that , with respect to any Development Costs incurred by the Parties in excess of [ * ] of the amount allocated to the activit ies conducted under the Development Plan during such Calendar Quarter in the annual Development Budget (for this purpose, without giving effect to any amendment thereof) approved by the JSC for the Calendar Year in which such Calendar Quarter occurs (the “ Excess Costs ”), Calithera shall be required to pay its portion of any Excess Costs within [ * ] after its receipt of an invoice therefor.  Each Party shall have the right to audit the records of the other Party with respect to any purported Development Cos ts included in such reports, in accordance with Section 9.7 ; and provided further that in the event of any disagreement with respect to the amount of Development Costs incurred or the calculation of such payment, any undisputed portion of such settlement payment shall be paid in accordance with the foregoing timetable and the remaining, disputed portion shall be paid within [ * ] after the date on wh ich the Parties, using good faith efforts, resolve the dispute or, if not so resolved within [ * ], within [ * ] after such dispute is resolved pursuant to Section 14.1 .   For clarity, an increase in the Development Budget in and of itself shall not be cause for a dispute of Development Costs.

(d) Development Cost FTE Tracking .  Each Party shall record and account for its FTE effort to the extent that such FTE efforts are included in Development Costs that are, or may in the future be, shared under this Agreement, and shall report such FTE effort to the applicable subcommittee of the JSC, if requested (such request not to be more than on a quarterly basis).  Each Party shall calculate and maintain records of FTE effort incurred by it in the same manner as used for other products developed by such Party, unless the Parties agree to employ other procedures, in which case such other procedures shall be applied equally to both Parties.

5.2 Auto Opt-Out Event and Co-Development Opt-Out Right .

(a) Auto Opt-Out Event .  In the event that Calithera fails to pay its share of undisputed Development Costs for any Calendar Quarter within [ * ] (or [ * ] with respect to Excess Costs) after receipt of invoice therefor in accordance with Section 5.1(c), then to the extent not yet expired (determined as of the applicable payment due date), Calithera’s Co-Development Funding Share Obligations shall automatically expire and Calithera shall automatically be deemed to have exercised its Co-Development Opt-Out Right (the

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Development Auto Opt-Out Event ”) and Incyte shall send Calithera written notification thereof.  Such Development Auto Opt-Out Event will take effect upon the applicable invoice due date, and the amount remaining unpaid giving rise to the Development Auto Opt-Out Event shall be referred to as the “ Payment Deficit ”, which such Payment Deficit shall additionally include Calithera’s share of undisputed Development Costs that accrued within such [ * ] (or [ * ] with respect to Excess Costs) payment period prior to the occurrence of the Development Auto Opt-Out Event.  The effects of occurrence of an Auto Opt-Out Event are set forth in Section 5.2(c) .  Such effects will be Incyte’s sole remedy, and Calithera’s sole liability, for Calithera’s failure to pay its share of Development Costs under Section 5.1(c) by the applicable due date.

(b) Voluntary Exercise of Co-Development Opt-Out Right by Calithera .  Calithera shall have the sole right and discretion to exercise voluntarily the Co-Development Opt-Out Right at any time upon written notice to Incyte.  The exercise by Calithera of the Co-Development Opt-Out Right shall become effective at the end of the Calendar Quarter during which Incyte receives written notification thereof; provided that if such notice is provided within [ * ] before the end of a Calendar Quarter, the Co-Development Opt-Out Right shall become effective at the end of the subsequent Calendar Quarter.  The effects of Calithera exercising the Co-Development Opt-Out Right are set forth in Section 5.2(c).    

(c) Effects of Calithera Exercising the Co-Development Opt-Out Right; Auto Opt-Out Event .  If Calithera validly exercises the Co-Development Opt-Out Right or an Auto Opt-Out Event occurs, the following shall apply as of the effective date of the Co-Development Opt-Out Right in accordance with Section 5.2(b) or the effective date of the Auto Opt-Out Event in accordance with Section 5.2(a) or Section 9.5(d), as applicable:

(i) Calithera shall have no further rights to research, Develop or co-Detail the Licensed Compound or Licensed Product (as applicable) under the terms of this Agreement, except in connection with Calithera Combination Studies that are not part of the Development Plan under this Agreement.

(ii) Inc yte (and its Affiliates and sublicensees, as applicable) shall have the right to take over the conduct of all activities related to the research, Development and Commercialization of the Licensed Compounds and Licensed Products for all Indications in the Hematology/Oncology Field in the Territory (excluding Calithera Combination Studies that are not part of the Development Plan) , and shall bear all Development Costs in connection therewith; provided that (A) Calithera shall remain liable for its Co-Development Funding Share Obligation with respect to Development Costs incurred on or prior to the effective date of such opt-out, including the Payment Deficit and its share of any Calithera Combination Studies that are part of the Development Plan and (B) the JDC will determine whether Incyte will take over the conduct of any Calithera Combination Studies that are part of the Development Plan or whether Calithera will continue to conduct such studies, taking into account all relevant factors .

(iii) Within [ * ] after the effectiveness of the Co-Development Opt-Out Right or Auto Opt-Out Event, Calithera shall provide Incyte with all Regulatory Documentation,

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including any such Regulatory Documentation submitted to any Regulatory Authorities prior to such effective ness, related to the Development and Regulatory Approval of Licensed Compounds and Licensed Products in the Hematology/Oncology Field that was conducted by Calithera (excluding any Calithera Combination Studies that are not part of the Development Plan und er this Agreement) and that has not been previously made available to Incyte.

(iv) All payment obligations to or from one Party to the other Party (as applicable) due in accordance with the Net Profit and Net Loss sharing arrangement between the Parties wi th respect to Net Sales of Licensed Product in the United States as set forth in Section 9.5 shall cease, with the exception of any such obligations that accrued prior to the effective date of the applicable opt-out, and in lieu thereof, Incyte shall pay Calithera the applicable royalty rates set forth in Section 9.3 on the Annual Net Sales of Licensed Product in the United States plus [ * ] on such Annual Net Sales of Licensed Product in the United States solely until such time as the aggregate payments received by Calithera from [ * ] equal [ * ] of the amount of Development Costs actually incurred by Calithera in accordance with Section 5.1(c) (collectively, the “ Royalty Obligations Following Conversion ”).  In addition, in the event of an Auto Opt-Out Event, Incyte shall offset the Payment Deficit, and any accrued interest thereon under Section 9.10, against any milestone payments or royalties due to Calithera under Sections 9.2 or 9.3, respectively, until fully recovered; provided that if the entirety of such Payment Deficit is not fully recovered prior to termination of this Agreement in its entirety, then Incyte shall have the right to invoice Calithera for the unrecovered portion of such Payment Deficit, and any accrued interest thereon under Section 9.10, and Calithera shall pay such invoice within [ * ] after receipt thereof.  For clarity, in the event of any Auto Opt-Out Event, the amount of any Net Losses remaining unpaid by Calithera will be deemed a Payment Deficit, which Incyte shall recover pursuant to this Section 5.2(c)(iv).     

5.3 Clinical Trial and Combination Studies .  With respect to any Clinical Trials conducted or Operationalized by Calithera under this Agreement, (i) [ * ], (ii) [ * ] and (iii) [ * ], (iv) [ * ] and (v) [ * ].

(a) CB-1158-101 Study .  Calithera shall be responsible for Operationalizing those [ * ] and those [ * ] as outlined for [ * ] (collectively, the “ CB-1158-101 Study ”).  Calithera shall conduct [ * ]; provided that Incyte shall have the right to conduct [ * ] in addition to those conducted by Calithera under such study; provided further that , notwithstanding Section 5.2(a), Incyte shall have the right to [ * ].

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(b) Regulatory Transition .  Calithera shall transfer the IND and Global Safety Database to Incyte within [ * ] of the Effective Date, or later if Incyte determi nes [ * ] that the Parties have not sufficiently completed a transition of the requirements of the Global Safety Database, in which case Calithera shall continue the safety assessment and regulatory reporting on Incyte’s behalf until such time as Incyte no tifies Calithera that the transition of the requirements of the Global Safety Database has been completed (the “ Regulatory Transition ”).  Prior to the Regulatory Transition:

(i) Incyte shall have the right to [ * ] in accordance with the Development Plan.

(ii) With respect to the Clinical Trials being Operationalized by Calithera, [ * ].

(c) Research and Development Lead .  Except for those activities expressly allocated to Calithera herein, and subject to Section 5.3(b)(ii), Incyte shall lead all research and Development activities related to the Licensed Compounds and Licensed Products in the Hematology/Oncology Field in the Territory and shall conduct: (i) all Phase II Studies, including all US Phase II Studies, other than any Authorized US Phase II Study , (ii) all Clinical Trials involving sites outside the United States, (iii) all Clinical Trials that have the potential to serve as the basis for Regulatory Approval, including Pivotal Studies of Licensed Product in the Hematology/Oncology Field in the Territory and (iv) any other Clinical Trials, [ * ]; provided that Incyte shall not have the right to conduct any Clinical Trials of any Licensed Product [ * ].

(d) Authorized and Non-Authorized US Phase II Study .  Subject to (1) Section 5.3(c)(iii), (2) Calithera not having exercised the Co-Development Opt-Out Right and (3) Calithera not having suffered an Auto Opt-Out Event, Calithera shall have the right to Operationalize [ * ].  Incyte shall have the right to take over an Authorized US Phase II Study from Calithera in the event that (i) Calithera has exercised the Co-Development Funding Opt-Out Right or an Auto Opt-Out Event has occurred or (ii) Calithera is at least [ * ] behind on the achievement of any timeline set forth in the then-current Development Plan without reasonable rationale therefor, as determined by the JDC.

(e) Calithera Combination Study .  Calithera shall have the right to conduct, at its sole cost and expense [ * ], Clinical Trials that evaluate the combination of a Licensed Compound in the Hematology/Oncology Field, plus a Portfolio Product of Calithera that is not an Arginase Inhibitor and that is being developed or commercialized in the Hematology/Oncology Field (each a “ Calithera Combination Study ”); provided that subject to and following the procedures set forth in Section 5.3(e)(i), the JDC shall have the right to veto the conduct of a Calithera Combination Study if the JDC reasonably believes [ * ], (x) the JDC shall review and approve the development plan and determine the dose and dosage regimen of the Licensed Compound and (y) the dose of the Portfolio Product of Calithera shall not exceed its maximum tolerated dose.  Calithera shall provide Incyte with a summary of all efficacy data and any associated biomarker data for each Calithera Combination Study regardless of whether

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Incyte provided funding for such study, it being understood that if such study is not included in the Development Plan, such data will not be included in Calithera Know-How and Incyte will not have the right to use such data for any purpose, other than safety reporting.  Notwithstanding anything in this Agreement to the contrary, Calithera shall not be obligated to provide to Incyte (except as provided in the preceding sentence), and Incyte shall not have the right to use or reference, any data or results of a Calithera Combination Study (which will not be considered Arising IP) unless and until Incyte agrees in writing to include all costs t herefor incurred by Calithera as Development Costs; provided that Calithera shall provide Incyte all safety data for any Licensed Compound resulting from such Calithera Combination Study in accordance with the Pharmacovigilance Agreement.  From and after t he time that the costs of a Calithera Combination Study are included in Development Costs (which may be at a time subsequent to when such costs were incurred), Calithera (A) shall make all material data and information generated from such combination study and Controlled by Calithera available to Incyte on a quarterly basis, or at such other intervals as the JDC may reasonably request, subject to any Third Party confidentiality obligations, and (B) hereby grants to Incyte a Right of Reference or Use to any and all Regulatory Documentation Controlled by Calithera relating to such combination study for the purpose of Developing and Commercializing Licensed Compounds and Licensed Product in the Hematology/Oncology Field in the Territory .

(i) In the event that Calithera desires to conduct one or more Calithera Combination Studies , then Calithera shall, on or before initiating such Calithera Combination Study , propose such study to the JDC and provide the JDC with a study plan(s), including the safety reporting plan, and proposed protocol(s) for such study as well as additional information that the JDC may reasonably request related to such Calithera Combination Study .  The JDC shall meet within [ * ] of receiving such proposal to determine, in accordance with the terms and conditions of Section 5.3(e), whether or not to authorize the performance of such Calithera Combination Study; provided that the JDC shall have the right to determine that such study be performed under and included in the Development Plan and Development Budget, and if so determined such study shall be conducted in accordance with Section 5.3(e).

(ii) If the JDC authorizes a proposed Calithera Combination Study, but determines not to have the Calithera Combination Study performed under and included in the Development Plan and Development Budget, then Calithera shall have all right, but no obligation, to conduct such study at its sole cost and expense [ * ]; provided that (1) Calithera shall discuss the translational science aspects of such Calithera Combination Study with the JDC and shall, for informational purposes, keep the JDC reasonably informed with respect to the on-going performance and operational aspects of such Calithera Combination Study and (2) Calithera shall procure all Licensed Compound for use in such Calithera Combination Study in accordance with Sections 6.1 or 6.2 (as applicable).  For the avoidance of doubt, Calithera’s rights under this Section 5.3(e) are limited solely to the right to conduct a Calithera Combination Study and in no event shall Calithera have the right to Commercialize any Licensed Compound in the Territory, including any Licensed Compound which is the subject of a Calithera Combination Study (other than in accordance with its co-Detailing rights).  As between the Parties, Calithera will have the sole right to promote and otherwise commercialize a Portfolio

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Product of Calithera (for clarity, that is not an Arginase Inhibitor and that is being developed or commercialized in the Hematology/Oncology Field ) that is the subject of any Calithera Combination Study, throughout the world, consistent with the approved label for any such Portfolio Product of Calithera including any approved use of such Portfolio Product of Calithera in combination with a Licensed Compound or Licensed Product; provided that , Calithera shall not in connection with such promotion of such Portfolio Product of Calithera in the Territory make any statement with respect to a Licensed Compound or Licensed Product except as may specifically be set forth in the approved label for such Portfolio Product of Calithera ; provided further that [ * ].  For clarity, the license granted by Calithera to Incyte under Section 2.1 includes the right for Incyte to Develop the Licensed Compound in combination with other compounds in the Territory that are not Controlled by Calithera (i .e., that are not Retained Compounds or any Portfolio Product of Calithera), except as provided in Section 5.3(c) .

(iii) [ * ] .

5.4 Development Reports .

(a) Records .  Each Party shall maintain complete and accurate records (in the form of technical notebooks and/or electronic files where appropriate) of all work conducted by it under the Development Plan and all Know-How resulting from such work, and will retain all records required by applicable Law to be maintained in connection with the Development of Licensed Products.  Such records, including any electronic files where such Know-How may also be contained, shall properly reflect all work done and results achieved in the performance of the Development Plan in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes.  Each Party shall have the right to review and copy such records maintained by the other Party at reasonable times and to obtain access to originals to the extent reasonably needed for patent or regulatory purposes or for other legal proceedings.  

(b) Development Reports of Calithera .  Calithera shall provide the JDC with a written report at least quarterly summarizing in reasonable detail Calithera’s and its Affiliates’ activities and progress related to the Development of Licensed Compounds and Licensed Products in the Hematology/Oncology Field in the Territory in accordance with the Development Plan , including information concerning the conduct of authorized non-clinical activities, CB-1158-101 Study, Authorized US Phase II Studies and Calithera Combination Studies that are included in the Development Plan and Development Budget , and any future planned Development activities with respect thereto.

(c) Development Reports of Incyte .  Until First Commercial Sale of a Licensed Product in [ * ], Incyte shall provide the JDC with a written report at least [ * ], or if the JSC is disbanded upon a Change of Control of Calithera pursuant to Section 15.3(b), Incyte shall provide Calithera with a written report at least [ * ] (notwithstanding the terms of Section 15.3), summarizing in reasonable detail Incyte’s and its Affiliates’ activities and progress related to the Development of Licensed Compounds and Licensed Products in the Territory in accordance with the Development Plan , including information concerning the conduct of non-clinical activities,

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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US Phase II Studies and other Clinical Trials [ * ] it conducts , applications for and securing of Regulatory Approvals of such Licensed Product in the Territory, First Commercial Sale of such Licensed Product and any future planned Development activities with respect thereto.  Calithera shall have the right to provide all information in each such report to Mars as Confidential Information (as defined in the Mars Agreement) with respect to which  Calithera is the Disclosing Party (as defined in the Mars Agreement), subject to the confidentiality provisions of the Mars Agreement.

5.5 Regulatory Matters Related to Licensed Products .

(a) Regulatory Submissions .  Incyte shall oversee, monitor and coordinate all regulatory actions, communications and filings with, and submissions (including expedited safety reports (SUSARs) as of the Regulatory Transition) to, the Regulatory Authorities with respect to Licensed Compounds and Licensed Products in the Hematology/Oncology Field in the Territory.  Incyte shall keep the JDC reasonably informed in connection with the preparation of all Regulatory Documentation, Regulatory Authority review of Regulatory Documentation, and Regulatory Approvals, annual reports, annual re-assessments, and variations and labeling, in each case with respect to Licensed Compounds and Licensed Products in the Hematology/Oncology Field in the Territory [ * ].  Unless already the Confidential Information of Calithera, any information disclosed pursuant to this Section 5.5(a) shall be the Confidential Information of Incyte.

(b) Regulatory Meetings and Correspondence.

(i) Incyte shall be responsible for interfacing, corresponding and meeting with all Regulatory Authorities with respect to Licensed Compounds and Licensed Products in the Hematology/Oncology Field in the Territory, subject to Cali thera’s rights under Section 5.3(b)(ii); provided that in accordance with Section 5.3(e)(ii), Calithera shall be responsible for interfacing, corresponding and meeting with all Regulatory Authorities solely with respect to a Portfolio Product of Calithera [ * ] used in a Calithera Combination Study.

(ii) With respect to the Clinical Trials under Sections 5.3(a) and 5.3(d), Calithera shall have the right to have a senior, experienced employee reasonably acceptable to Incyte participate as an observer in material scheduled face-to-face meetings, video conferences and any teleconferences with the FDA, and shall be provided with advance access to the material documentation prepared by Incyte for such meetings.

(c) Global Safety Database; Pharmacovigilance Agreement .  Subject to the Regulatory Transition, Incyte shall establish, hold and maintain the global safety database for each Licensed Compound and Licensed Product (the “ Global Safety Database ”) into which it shall enter information on all adverse events concerning such Licensed Compound and Licensed Product occurring anywhere in the world and reported to either of the Parties in accordance with a pharmacovigilance agreement for each such Licensed Compound and Licensed Product to be negotiated and entered into by the Parties within [ * ] after the Execution Date (each, a

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Pharmacovigi lance Agreement ”).  Pursuant to the terms of the Pharmacovigilance Agreement, such database shall comply in all material respects with all Laws reasonably applicable to pharmacovigilance anywhere where such Licensed Compounds and Licensed Products are bein g or have been Developed or Commercialized.  The Pharmacovigilance Agreement shall, among other things, govern cooperation between the Parties that will enable each of them to comply with its respective obligations under applicable Laws with regard to adve rse event data collection, analysis and reporting and to enable each Party to satisfy its duty of care, and to govern the Global Safety Database.  Pursuant to the terms of the Pharmacovigilance Agreement, Calithera shall provide information on all adverse events concerning Licensed Compounds and Licensed Products for Incyte’s Global Safety Database, and all clinical data generated from a Clinical Trial conducted by it, on or prior to the Regulatory Transition and, at any time during the Term, for Incyte’s G lobal Safety Database or Incyte’s data management database, as appropriate.  Calithera will transmit to Incyte all serious life threatening or death events in [ * ] and all other serious events in [ * ].  Incyte will be responsible for reporting adverse ev ents to the FDA and any other Regulatory Authorities as required.

5.6 Recall or Withdrawal of Licensed Products .   Incyte shall [ * ] notify Calithera if it obtains information indicating that any Licensed Product may be subject to any recall, withdrawal or market notification, and the Parties will thereafter discuss any actions Incyte may take in connection therewith.  Notwithstanding the foregoing, Incyte shall be responsible for all recalls, withdrawals and market notifications of Licensed Products worldwide, at its sole expense, except for those expenses in the U.S. included in Allowable Expenses.  

ARTICLE VI

CLINICAL AND COMMERCIAL SUPPLY

6.1 Calithera Manufacturing Obligation .  Calithera (or its Affiliates or subcontractors) shall have the obligation to manufacture (or have manufactured) and supply (or have supplied), (i) the active pharmaceutical ingredient for the clinical supply of product to be used in (1) the CB-1158-101 Study and (2) any other Clinical Trial study commenced by the Parties hereunder prior to the Manufacturing Transfer, and (ii) package and label (or have packaged and labeled) the finished dosage form of the clinical supply of product to be used in (1) the CB-1158-101 Study and (2) any other Clinical Trial study commenced by the Parties hereunder prior to the Manufacturing Transfer, in each case of (i) and (ii), solely until the Manufacturing Transfer (the “ Calithera Manufacturing Obligation ”).  For clarity, if prior to the Manufacturing Transfer , (A) Incyte exercises its right to take over the CB-1158-101 Study or an Authorized US Phase II Study in accordance with Sections 5.3(a) or 5.3(d), respectively, or (B) the Parties commence any other Clinical Trial hereunder, in each case of (A) and (B), the Calithera Manufacturing Obligation shall extend to Incyte (i.e., Calithera shall supply for such use by Incyte) until the Manufacturing Transfer, and Calithera shall provide such clinical supply of product to Incyte (x) in order to ensure an orderly transition and uninterrupted supply of such product for use by Incyte in the CB-1158-101 Study and Authorized US Phase II Study (as applicable) and (y) in order to ensure an uninterrupted supply of such product for use by Incyte in any such other study .       

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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6.2 On-Going Clinical Supply by Incyte .   From and after the date on which (a) the manufacturing technology transfer is successfully completed in accordance with the manufacturing technical transfer plan under Section 6.4 , as reasonably determined by the JMC, and (b) Incyte notifies Calithera pursuant to Section 6.4 that it is able to manufacture Licensed Compounds and Licensed Products at the scale and timing required for all Development activities under the Development Plan in accordance with Section 6. 4 (the “ Manufacturing Transfer ”), Incyte shall manufacture (or have manufactured) and supply (or have supplied), (i) Calithera with the finished dosage form of the clinical supply of produc t reasonably required for the conduct of the CB-1158-101 Study and (ii) the finished dosage form of the clinical supply of Licensed Compound to be used in any other Clinical Trials led or conducted by either Party (as applicable), under the terms of this A greement (for clarity, not including Calithera Combination Studies).  All associated costs and expenses, including Manufacturing Costs, shall be Development Costs to the extent within the definition thereof and allocated to the Parties in accordance with t heir respective Co-Development Funding Share Obligations.  In addition, Incyte shall provide such clinical supply of Licensed Compound to Calithera at Manufacturing Cost under the terms of a clinical quality and supply agreement to the extent Calithera req uires such supply for a Calithera Combination Study, which Manufacturing Cost will be included in Development Costs if the costs for such study are included in Development Costs as provided in Section 5.3(e) ; provided that , if a Calithera Combination Study is not included in the Development Plan, then such supply shall be subject to availability after the needs of Clinical Trials and other Developmen t activities under the Development Plan.  The Parties shall commence negotiations on the terms of such agreement reasonably prior to the anticipated commencement of the applicable Clinical Trial and shall make a good faith effort to have an executable agre ement no later than six (6) months prior to the anticipated date of first supply.

6.3 Commercial Supply by Incyte .   Incyte (or its Affiliates or subcontractors) shall be responsible for (i) the manufacture of (or to have manufactured) and supply of (or to have supplied) the active pharmaceutical ingredient for the commercial supply of Licensed Compound and Licensed Product and (ii) the finished manufacturing, including the formulation, fill, finishing, packaging and labeling of the finished dosage form of the commercial supply of Licensed Compound and Licensed Product, in each case of (i) and (ii), as such compound or product is being Commercialized in the Hematology/Oncology Field in the Territory pursuant to the terms of this Agreement.

6.4 Manufacturing Technology Transfer .  Within sixty (60) days of the Execution Date (but no earlier than the Effective Date), Calithera shall initiate a manufacturing technology transfer (including CMC transfer) for the Licensed Compounds to Incyte (or its designated Affiliates or subcontractors), the conduct and completion of which shall be in accordance with the terms and conditions of a manufacturing technical transfer plan provided and overseen by the JMC.  Each Party shall use Commercially Reasonable Efforts to complete such technology transfer as soon as reasonably practicable, and Incyte shall use Commercially Reasonable Efforts thereafter to be able to manufacture Licensed Compounds and Licensed Products at the scale and timing required for all Development activities under the Development Plan.  Incyte shall keep Calithera reasonably informed of its supply activities and its ability to manufacture Licensed

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Products for Development.  In addition, upon the request of Incyte from time to time during the Term, Calithera s hall provide to Incyte (or its designated Affiliates or subcontractors) such reasonable technical assistance as Incyte may request in connection with the manufacture of Licensed Compounds and Licensed Products.  The [ * ] incurred by Incyte and Calithera t o conduct such transfer and assistance will be included in Development Costs.

ARTICLE VII

COMMERCIALIZATION AND CO-DETAILING OPTION

7.1 Commercialization Diligence .  Incyte shall use Commercially Reasonable Efforts (i) to launch at least one (1) Licensed Product in the Hematology/Oncology Field in the Major Markets within one hundred and eighty (180) days after receipt of Regulatory Approval and Pricing and Reimbursement Approval therefor in the applicable country and (ii) thereafter to Commercialize such Licensed Product in such country.

7.2 Marketing and Pricing Responsibilities for Licensed Products .  Subject to Calithera’s Co-Detailing Right with respect to Licensed Product in the United States, Incyte (itself or through its Affiliates or sublicensees) shall have the sole right to Commercialize Licensed Product worldwide, including to invoice and book sales, establish all terms of sale (including pricing, discounts, rebates, contracting and reporting to Regulatory Authorities with respect thereto) and warehousing, and distribute Licensed Product and to perform or cause to be performed all related services.  For clarity, Incyte shall have the sole responsibility and discretion over all decisions related to the establishment of pricing for the Commercialization and sale of Licensed Product in the Territory, such pricing shall be established in compliance with all applicable Laws.  Incyte shall handle all returns, recalls, or withdrawals, order processing, invoicing, collection, distribution, and inventory management with respect to the Licensed Product globally.  Calithera may co-Detail the Licensed Product in the United States pursuant to Section 7.3.  No later than thirty (30) days after the date of submission of the NDA for a Licensed Product in the U.S., Incyte shall provide to Calithera a high-level summary of the commercialization plan for the U.S. that sets forth the overall commercial goals  and strategy for the Commercialization of Licensed Products in the U.S., including a high-level summary of the planned prelaunch, launch and subsequent Commercialization activities, along with an annual budget for such activities and all other expenses that are projected by Incyte to be included in Allowable Expenses (as may be amended from time to time, the “ Commercial Budget ”), as well as a preliminary estimate of the commercial costs projected by Incyte to be included in Allowable Expenses for the two (2) years immediately following the twelve (12) month period included in such annual budget which is provided for informational purposes only.  For clarity, the Parties acknowledge that the Commercial Budgets for the following years may not resemble or reflect the preliminary estimate of commercial costs projected by Incyte to be included in Allowable Expenses for the two (2) years immediately following the twelve (12) month period included in the annual budget.  Incyte shall inform the JCC of any material changes to such commercial strategy and goals, and shall provide to the JCC for its review any material amendments to such Commercial Budget.  Until First Commercial Sale of a Licensed Product in a Major Market, Incyte shall provide Calithera with a summary written report, no later than

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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November 1 of each Calendar Year, of the status of its and its Affiliate s’ and sublicensees’ efforts to Commercialize Licensed Products .  Calithera shall have the right to provide all information in each such report to Mars as Confidential Information (as defined in the Mars Agreement) with respect to which  Calithera is the D isclosing Party (as defined in the Mars Agreement), subject to the confidentiality provisions of the Mars Agreement.

7.3 Calithera Co-Detailing Option for Licensed Product in the United States .

(a) Co-Detailing Right .  Subject to (1) Calithera not having exercised the Co-Development Opt-Out Right, (2) Calithera not having suffered the Auto Opt-Out Event and (3) Calithera’s continued performance and compliance with its obligations under Sections 7.3(b) and 7.4(a), Calithera shall have a co-exclusive (with Incyte and its Affiliates) right, on a [ * ] basis     [ * ], to Detail each Licensed Product in the United States on the terms and conditions set forth in this Section 7.3 (“ Co-Detailing Right ”).  Subject to the foregoing, Incyte shall notify Calithera in writing [ * ] to the anticipated launch date for each Licensed Product in the United States and shall provide Calithera with Incyte’s then-current Detailing plan and budget (“ Detailing Plan ”) with respect thereto, and to the extent such anticipated launch date becomes delayed by more than [ * ], Incyte shall so update Calithera in writing, and provide, if applicable, any updated version of the Detailing Plan.  Calithera may exercise its Co-Detailing Right by providing Incyte written notice within [ * ] after its receipt of such Detailing Plan, provided that if there is a delay in the anticipated launch date by more than [ * ], Calithera shall have the right to revoke its exercise in writing upon notice of such delay, and to re-invoke such exercise in writing within     [ * ] (or such shorter period as may be applicable) prior to such delayed anticipated launch date, provided further that Incyte will deliver an updated Detailing Plan (if any) to Calithera [ * ] prior to the date Calithera may re-invoke its exercise of the Co-Detailing Right (i.e., [ * ] prior to the delayed anticipated launch date or such shorter period as may be applicable).  In accordance with Section 3.1(c), Incyte shall have (i) the right and responsibility for preparing and amending the Detailing Plan and (ii) final decision-making authority over all decisions with respect to the creation, modification and implementation of the Detailing Plan with respect to Licensed Product in the Territory.  Any such Detailing Plan shall include a target call list and call plan and shall allocate Details to high prescribers on a reasonable basis as between Calithera and Incyte.  Calithera shall use [ * ] to Detail each applicable Licensed Product in the United States in accordance with the Detailing Plan to the extent it exercises the Co-Detailing Right.  In the event of any breach of this Section 7.3 or Section 7.4 by Calithera, Incyte shall the right to terminate Calithera’s Co-Detailing Right effective upon [ * ] prior written notice, unless Calithera cures such breach prior to the expiration of such [ * ].

(b) Effects of Exercise of Co-Detailing Right .  If Calithera exercises its Co-Detailing Right:  

(i) The Detailing Plan shall set out the number of FTE s ales representatives Incyte determines are required for delivering the requisite Details for Licensed Product in the United States.  Calithera may elect to be responsible for up to [ * ] of the Details based on a primary detail equivalent to be set forth in the Detailing Plan for Licensed Product in

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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the United States, and shall state such elected percentage in its exercise notice; provided that there shall be no change to the elected percentage set forth in such notice without the mutual written consent of each Party. Calithera’s sales representatives Detailing for Licensed Product in the United States shall Detail such Licensed Product in the primary or secondary detail equivalent position; provided that [ * ].   

(ii) [ * ].

(iii) [ * ].

(iv) [ * ].

(v) [ * ].

(vi) [ * ].

(vii) Calithera acknowledges and agrees that its sales representatives engaged by it are not, and are not intended to be or be treated as, employees of Incyte or any of its Affiliates, and that such individuals are not, and are not int ended to be, eligible to participate in any benefits programs that are sponsored by Incyte or any of its Affiliates or that are offered from time to time by Incyte or its Affiliates to their own employees.  All matters of compensation, benefits and other terms of employment for any such sales representatives engaged by Calithera shall be solely a matter between Calithera and such individual.  Incyte shall not be responsible to Calithera, or to any of Calithera’s sales representatives, for any compensation, expense reimbursements or benefits (including vacation and holiday remuneration, healthcare coverage or insurance, life insurance, severance or termination of employment benefits, pension or profit-sharing benefits and disability benefits), payroll-related taxes or withholdings, or any governmental charges or benefits (including unemployment and disability insurance contributions or benefits and workmen’s compensation contributions or benefits) that may be imposed upon or be related to the performance by Calithera and such individuals of this Agreement, even if it is subsequently determined by any court or governmental agency that any such individual may be an employee or a common law employee of Incyte or any of its Affiliates or is otherwise entitled to such payments and benefits.

(viii) Calithera and its sales representatives and Incyte and its sales representatives shall limit claims of efficacy and safety of Licensed Product to those that are consistent with Laws and with approved indications and other c laims in (and not add, delete or otherwise modify claims of efficacy and safety in the promotion of Licensed Product in any respect from those claims of efficacy and safety that are contained in) Licensed Product labeling approved by the respective Regulatory Authorities in the United States and promotional materials provided by Incyte.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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(ix) Calithera and its sales representatives and Incyte and its sales representatives shall use the promotional materials provided by Incyte within the United States in a m anner that is consistent with Laws, the Detailing Plan, and with the Licensed Product labeling approved by the respective Regulatory Authorities in the United States.

(x) Calithera and its sales representatives and Incyte and its sales representatives sha ll promote Licensed Product in the United States in compliance with all Laws.

(xi) Calithera shall have the right to continue to Detail the applicable Licensed Product during the applicable Royalty Term in the U.S. for such product, subject to there not occurring an Auto Opt-Out Event or Calithera exercising the Co-Development Opt-Out Right.  Calithera shall have the right to relinquish its Co-Detailing Right for such Licensed Product upon [ * ] to Incyte, in which case the Parties shall reasonably cooperate to transition to Incyte all of Calithera’s Detailing activities so as to minimize disruption to sales activity.

7.4 Global Branding; Trademarks .

(a) Global Branding Strategy .  Incyte shall have the right, from time to time during the Term, to implement (and thereafter modify and update) a global branding strategy, including global positioning (the “ Global Branding Strategy ”), for Licensed Product throughout the world.  Each Party (as applicable) shall adhere to the Global Branding Strategy in its Commercialization (or, co-Detailing in the case of Calithera, subject to Section 7.3(a)) of the Licensed Product in the Territory (or, with respect to Calithera, in the United States).   In accordance with Section 3.1(c), Incyte shall have (i) the right and responsibility for preparing and amending the Global Branding Strategy and (ii) final decision-making authority over all decisions with respect to the creation, modification and implementation of the Global Branding Strategy with respect to Licensed Product in the Territory, subject to the review and discussion thereof by the JSC.

(b) Trademarks .  Incyte and its Affiliates shall select and own the trademarks under which all Licensed Products will be marketed worldwide; provided that no such trademark shall contain the word “Calithera”.  If Calithera exercises its Co-Detailing Right for a Licensed Product, Incyte shall reasonably consider including on the Detailing material used in the U.S. the logos of both Incyte and Calithera, to the extent consistent with applicable Law.  In such case the Parties will enter into a trademark license agreement governing the use of Calithera’s names and logos by Incyte.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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ARTICLE VIII

INTELLECTUAL PROPERTY OWNERSHIP,

PROTECTION AND RELATED MATTERS

8.1 Inventorship; Ownership .

(a) Inventorship .  Inventorship of Inventions discovered, made or conceived during the course of the performance of activities pursuant to this Agreement (including those within the Arising IP) shall be determined in accordance with the patent Laws of the United States; provided that in the event that determining inventorship in accordance with such Laws would render any Patent Right that Covers such Invention invalid, inventorship shall be determined in accordance with the Laws of the jurisdiction where such Patent Right is filed.

(b) Inventor Assignment Obligation .  Each Party shall cause all employees, independent contractors, contract research organizations , consultants and others who perform activities for such Party under this Agreement to be under an obligation to assign (or, if such Party is unable to cause such person or entity to agree to such assignment obligation despite such Party using Commercially Reasonable Efforts to negotiate such assignment obligation, provide an exclusive or non-exclusive license under) their rights in any Inventions or other Know-How and all Intellectual Property Rights generated in the course of conducting such activities to such Party, including all Intellectual Property Rights therein, except where applicable Law requires otherwise and except in the case of governmental, not-for-profit and public institutions which have standard policies against such an assignment (in which case a suitable license, or right to obtain such a license, shall be obtained).

(c) Ownership and Disclosure Obligations .

(i) Ownership of IP .  

A. Subject to the rights and licenses expressly granted under this Agreement, each Party shall retain all rights, title and interests in, to and under any and all Intellectual Property Rights that are Controlled by such Party prior to the Execution Date or independent of this Agreement.  

B. For clarity, as between the Parties, subject to Section 8.1(c)(i)B, each Party shall own all Intellectual Property Rights (including those pertaining to Arising IP) generated solely by it, its Affiliates, its licensees, sublicensees and subcontractors (to the extent applicable) in the course of performing its obligations or exercising the rights that it is granted hereunder or that it retains as specified herein or otherwise.  To the extent that a Party, its Affiliates, licensees, sublicensees or subcontractors (as applicable) is assigned or otherwise obtains ownership of any right, title, or interest in or to any Intellectual Property Rights in contravention of the foregoing, such Party hereby assigns, and shall cause its Affiliates, licensees, sublicensees or subcontractors (as applicable) to assign, to the other Party (or to such Affiliate or Third Party designated by such other Party in writing) all such right, title and interest.  

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Within [ * ], each Party shall disclose to the other Party in writing, and shall cause its Affiliates, licensees, sublicensees and subcontractors (as applicable) to so disclose, the development, making, conception or reduction to practice of any Arising IP.  Each Party shall have the r ight to use such Arising IP in the course of exercising its rights or fulfilling its obligations under this Agreement, consistent with the license grants set forth in ARTICLE II .

C. As between the Parties, each Party shall own an equal, undivided interest in any Joint Arising IP.  Within [ * ] after development, conception or discovery, each Party shall disclose to the other Party in writing, and shall cause its Affiliates, its licensees, sublicensees and subcontractors to so disclose, the development, making, conception or reduction to practice of any Invention or other Know-How it believes may be Joint Arising IP.  Each Party shall have the right to use Joint Arising IP, or license such Joint Arising IP to its Affiliates or any Third Party, or sell or otherwise transfer its interest in such Joint Arising IP to its Affiliates or a Third Party, in each case without the consent of the other Party; provided tha t such use, sale, license or transfer is subject to the exclusivity obligations and licenses granted pursuant to this Agreement and is otherwise consistent with this Agreement.

8.2 Prosecution and Maintenance of Patent Rights .

(a) Mars Patent Rights .  As between the Parties, Calithera shall have the exclusive right to (i) prosecute all pending and new patent applications included within the Mars Patent Rights, (ii) respond to oppositions, nullity actions, re-examinations, revocation actions and similar proceedings filed by Third Parties against the issuance of Mars Patent Rights for such applications, and (iii) maintain in force any issued Mars Patent Rights (such activities, whether with respect to the Mars Patent Rights or any other Patent Rights, “ Prosecution Activities ”).  Reasonably in advance of each substantive submission to be filed in a Major Market with respect to the Mars Patent Rights, Calithera will provide Incyte with a reasonable opportunity to review and comment on the proposed submission to any patent office and consider in good faith all reasonable comments provided by Incyte.  Calithera will keep Incyte reasonably informed of the status of the applicable Mars Patent Rights by timely providing Incyte with copies of any papers and all material communications relating to such Mars Patent Rights that are received from any patent office or patent counsel of record or foreign associate.  Calithera will conduct the Prosecution Activities with respect to the Mars Rights in good faith and in its sole discretion, including the right to abandon such Patent Rights, and shall have no liability under this Agreement with respect thereto.

(b) Calithera Owned Patent Rights and Joint Patent Rights .

(i) Promptly after the Effective Date, the Parties will decide on an independent patent counsel, mutually agreeable to the Parties, who will be responsible for handling the Prosecution Activities with respect to those Calithera Patent Rights that are not Mars Patent Rights (the “ Calithera Owned Patent Rights ”) and the Joint Patent Rights as set forth in this Section 8.2(b) (the “ Patent Counsel ”).  Promptly thereafter, each Party shall engage the Patent Counsel as provided below, and Calithera shall provide the Patent Counsel with access to

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the applicable file wrappers, docket reports and status reports for the then-existing Calithera Owned Patent Rights.  The Patent Counsel will take direction from and be engaged by Incyte with respect t o all Calithera Owned Patent Rights and Joint Patent Rights that are not Calithera Retained Compound Patent Rights (the “ Incyte Prosecuted Patents ”), and will take direction from and be engaged by Calithera with respect to all Calithera Retained Compound P atent Rights, in each case with such direction as provided in this Section 8.2(b) .

(ii) Each Party shall instruct the Patent Counsel, as soon as reasonably practicable and on an ongoing basis during the Term and to the extent consistent with applicable Law, to file divisional (or equivalent) patent applications in each applicable country of the Territory, claiming priority to the applicable Calithera Owned Patent Rights or Joint Patent Rights, that claim only the Retained Compounds and that do not claim any Licensed Compounds (such divisional patent applications, the “ Calithera Retained Compound Patent Rights ”).  If at any time Calithera terminates Development and Commercialization of a Retained Compound and returns it to the Arginase Inhibitor Pool pursuant to Section 4.2, the applicable Calithera Retained Compound Patent Right, if claiming only such terminated Retained Compound, will become an Incyte Prosecuted Patent.  Similarly, if at any time Incyte terminates Development and Commercialization of a Licensed Compound and returns it to the Arginase Inhibitor Pool pursuant to Section 4.2, and subsequently such compound becomes a Retained Compound, the applicable Incyte Prosecuted Patent, if claiming only such terminated Licensed Compound, will become a Calithera Retained Compound Patent Right.  The Parties hereby agree to work together and cooperate with each other in good faith to maintain independent patent estates to the extent practical given the particular facts and circumstances, and in all cases, consistent with applicable Law.

(iii) As between the Parties, Incyte shall be responsible for implementing the decisions of the JPC with respect to Prosecution Activities for the Incyte Prosecuted Patents.  Reasonably in advance of each substantive submission to be filed in a Major Market with respect to the Incyte Prosecuted Patents, Incyte will provide the JPC with a reasonable opportunity to review and comment on the proposed submission to any patent office and will implement the decision of the JPC.  Incyte will keep the JPC reasonably informed of the status of the applicable Incyte Prosecuted Patents by timely providing the JPC with copies of any papers and all material communications relating to such Incyte Prosecuted Patents that are received from any patent office or patent counsel of record or foreign associate.  

(iv) As between the Parties, Calithera shall be responsible for implementing the decisions of the JPC with respect to Prosec ution Activities for the Calithera Retained Compound Patent Rights.  Reasonably in advance of each substantive submission to be filed in a Major Market with respect to the Calithera Retained Compound Patent Rights, Calithera will provide the JPC with a reasonable opportunity to review and comment on the proposed submission to any patent office and will implement the decision of the JPC.  Calithera will keep the JPC reasonably informed of the status of the applicable Calithera Retained Compound Patent Rights by timely providing the JPC with copies of any papers and

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all material communications relating to such Calithera Retained Compound Patent Rights that are received from any patent office or patent counsel of record or foreign associate.

(v) In the event th at a Party elects to forego filing, prosecution or maintenance of any Patent Rights for which it is responsible under this Section 8.2(b), it shall notify the JPC (with a copy to the other Party) of such election at least [ * ] prior to any filing or payment due date, or any other due date that requires action (“ Election Notice ”).  Upon the JPC’s receipt of an Election Notice, the non-controlling Party shall be entitled, upon written notice to the other Party, at its sole discretion and expense, to file or to continue the prosecution or maintenance of such Patent Rights, in which case, (x) the non-controlling Party shall be permitted to conduct the Prosecution Activities with respect to such Patent Rights using the Patent Counsel, under the direction of the JPC, and at its own expense and (y) the previously controlling Party shall provide reasonable assistance to such Party in connection with such Prosecution Activities.

(c) Regulatory Filings .  The Parties shall cooperate with each other and discuss in good faith, as to the Licensed Compounds and Licensed Products, the Joint Patent Rights and Calithera Patent Rights Covering such Licensed Compounds and Licensed Products to enable Incyte to make filings with Regulatory Authorities, as required or allowed in connection with (A) in the United States, the FDA’s Orange Book and the Food, Drug and Cosmetics Act and (B) outside the United States, under the national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83 or other international equivalents thereof.  Calithera shall cooperate with Incyte’s reasonable requests in connection therewith, including meeting any submission deadlines, in each case, to the extent required or permitted by applicable Law.

(d) Extension Activities .  The Parties, through the JPC, shall cooperate in obtaining Patent Term Extensions pursuant to 35 U.S.C. § 156 and foreign counterparts and equivalents thereof, including supplementary protection certificates, to the extent such extensions are available with respect to the applicable Joint Patent Rights and Calithera Patent Rights (“ Extension Activities ”).  As between the Parties, Incyte shall have the right to control Extension Activities with respect to the Incyte Prosecuted Patents; provided that Incyte shall consult with the JPC before applying for any Patent Term Extension or foreign counterpart thereof with respect to a Licensed Compound or Licensed Product.

(e) Cooperation .  Each Party will provide reasonable assistance to the other Party, at the other Party’s request and expense, in connection with the Prosecution Activities and the Extension Activities, such assistance to include providing access to relevant persons and executing all documentation reasonably requested by such other Party.

(f) Costs .  With respect to the Joint Patent Rights and Calithera Patent Rights, Incyte shall be responsible for all costs and expenses incurred following the Effective Date associated with the Prosecution Activities and any Extension Activities relating to the Incyte Prosecuted Patents; provided that (A) [ * ], and (B) [ * ].  Calithera will be responsible for all costs and expenses incurred following the Effective Date associated with the Prosecution

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Activities and any Extension Activities relating to the Calithera Retained Compound Patent Rights and the Mars Patent Rights; provided that [ * ].  Without limiti ng the foregoing, in the event that Incyte abandons any Incyte Prosecuted Patent and Calithera assumes the responsibility for the Prosecution Activities with respect therefor, Incyte shall reimburse Calithera for its costs then-incurred in connection with the filing, prosecution or maintenance of such Patent Rights.

(g) Incyte Patent Rights .  As between the Parties, Incyte shall have the exclusive right to conduct Prosecution Activities with respect to pending and new patent applications included within Incyte’s solely-owned Arising IP (along with any patents issuing therefrom, the “ Incyte Patent Rights ”).  Reasonably in advance of each substantive submission to be filed in a Major Market with respect to the Incyte Patent Rights, Incyte will provide the JPC with a reasonable opportunity to review and comment on the proposed submission to any patent office and consider in good faith and accept all reasonable comments provided by Calithera in the JPC.  Incyte will keep the JPC reasonably informed of the status of the applicable Incyte Patent Rights by timely providing Calithera with copies of any papers or official correspondence and all material communications relating to such Incyte Patent Rights that are received from any patent office or patent counsel of record or foreign associate.

8.3 Third Party Infringement .

(a) Notice .  Each Party shall promptly provide the other Party with written notice reasonably detailing (i) any known or alleged infringement by a Third Party of Arising IP, Joint Arising IP and Calithera IP on account of a Third Party’s manufacture, use, offer for sale or sale of a Licensed Compound or a Licensed Product in the Hematology/Oncology Field , including any “patent certification” filed in the United States under 21 U.S.C. §355(b)(2) or 21 U.S.C. §355(j)(2) or similar provisions in other jurisdictions, and of any declaratory judgment, opposition, or similar action by a Third Party that is manufacturing, using, offering for sale or selling a Licensed Compound in the Hematology/Oncology Field alleging the invalidity, unenforceability or non-infringement of any such Intellectual Property Rights (collectively “ Third Party Infringement ”) and (ii) any allegation by a Third Party that Intellectual Property Rights owned by it is infringed, misappropriated or violated by the manufacture, research, Development or Commercialization of any Licensed Compound or Licensed Product in the Hematology/Oncology Field of which it becomes aware (“ Defense Action ”).

(b) Right for First Enforcement .   As between the Parties, with respect to the Arising IP solely owned by Incyte, Joint Arising IP, and Calithera IP, Incyte shall have the first right (but not the obligation) at its own expense, to control enforcement of such Intellectual Property Rights against any Third Party Infringement.  Prior to commencing any such action (unless delay would result in the loss of rights), Incyte shall consult with Calithera, and shall consider in good faith Calithera’s recommendations regarding the proposed action.  Incyte shall give Calithera timely notice of any proposed settlement of any such action instituted by Incyte and shall not, without prior written consent of Calithera (not to be unreasonably withheld, conditioned or delayed), enter into any settlement that would: (i) adversely affect the validity, enforceability or scope of, or admit non-infringement of, any of such Intellectual Property

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Rights, (ii) give rise to liability of Calithera, its Affiliates, or its or their licensees, sublicensees and subcontractors (to the extent applicable), (iii) grant to a Third Party a license or covenant not to sue under, or with respect to, any Intellectual Property Rights Controlled by Calithera or its Affiliates, or (iv) otherwise impair (A) Calithera’s, its Affiliates, or its or their lice nsors’, licensees’, sublicensees’ and subcontractors’ (to the extent applicable) rights in any such Intellectual Property Rights, (B) any other Intellectual Property Rights owned or controlled by Calithera or its Affiliates, or (C) this Agreement.

(i) If Incyte fails to initiate an infringement action or does not obtain agreement from the alleged infringer to desist, no later than (i) [ * ] following its sending or receiving notice of the Third Party Infringement as described in Section 8.3(a), or (ii) [ * ] before the expiration date for filing such action or responding (as applicable), whichever comes first, then solely with respect to the Calithera IP and Joint Arising IP, Calithera shall have the right, at its sole discretion, to control such enforcement of such Intellectual Property Rights at its sole expense; provided that it keep Incyte reasonably informed with respect thereto and shall not enter any settlement that (as it relates to Incyte) would violate the settlement protections applicable to Calithera in Section 8.3(b) .

(c) Assistance .  At the request and sole cost and expense of the Party controlling a Third Party Infringement action (“ Controlling Party ”), the other Party (the “ Non-Controlling Party ”) and its Affiliates shall provide reasonable assistance in connection with enforcement of the applicable Intellectual Property Rights subject to such Third Party Infringement action , including by joining in any such action and executing all papers and performing such other acts as may be reasonably required to permit the Controlling Party to commence or prosecute such action.  If the Non-Controlling Party is requested by the Controlling Party to join in any such action, the Controlling Party shall bear the Non-Controlling Party’s expenses in connection therewith.  The Non-Controlling Party shall have the right to be represented in any such action in which it is a party by independent counsel (which shall act in an advisory capacity only, except for matters solely directed to such Party) of its own choice and at its own expense.

(d) Recoveries .  

(i) If the Controlling Pa rty brings a suit or settles a Third Party Infringement, the Controlling Party shall have the right to reimburse itself, and the obligation to reimburse the Non-Controlling Party (to the extent applicable), out of any sums recovered in such suit or in its settlement for all out-of-pocket costs and expenses, including attorneys’ fees paid, related to such suit or settlement, and the balance of such sums shall be distributed or treated as follows:

A. If Incyte is the Controlling Party with respect to any such action outside the U.S., Calithera shall be entitled to [ * ].   

B. With respect to any such action in the U.S., [ * ].

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(e) Retained Compounds .  As between the Parties, Calithera will have the sole right to control enforcement of any Calithera IP or Joint Arising IP against any infringement by a Third Party on account of such Third Party’s manufacture, use, offer for sale or sale of a Retained Compound , including any “patent certification” filed in the Uni ted States under 21 U.S.C. §355(b)(2) or 21 U.S.C. §355(j)(2) or similar provisions in other jurisdictions, and of any declaratory judgment, opposition, or similar action by a Third Party that is manufacturing, using, offering for sale or selling a Retaine d Compound ; provided that if Incyte reasonably believes that such enforcement would have a material adverse impact on the Licensed Compounds in the Hematology/Oncology Field, then the Parties will thereafter discuss in good faith and endeavor to minimize a ny such impact.

(f) Defense Actions .  Incyte shall control any Defense Action brought by a Third Party against Incyte claiming infringement or misappropriation under the Intellectual Property Rights of such Third Party, including the right to litigate, settle or otherwise dispose thereof.  Incyte shall inform Calithera promptly of the institution of any Defense Action, keep Calithera timely informed of the status of and activities in such Defense Action and, at Calithera’s written request, provide Calithera with copies of all material filings pertaining thereto (which Calithera shall have the right to provide to Mars as Confidential Information (as defined in the Mars Agreement) with respect to which Calithera is the Disclosing Party (as defined in the Mars Agreement), subject to the confidentiality provisions of the Mars Agreement) and allow Calithera and Mars reasonable opportunity to comment on the Defense Action.  Incyte shall not settle, stipulate to any facts or make any admission with respect to any Defense Action without Calithera’s prior written consent if such settlement, stipulation or admission would (i) adversely affect the validity, enforceability or scope, or admit non-infringement, of any of the Arising IP, Joint Arising IP, or Calithera IP , (ii) give rise to liability of Calithera, its Affiliates, licensees, sublicensees or subcontractors (as applicable), (iii) grant to a Third Party a license or covenant not to sue under, or with respect to, any Intellectual Property Rights Controlled by Calithera or its Affiliates, or (iv) otherwise impair (A) Calithera’s, its Affiliates, or its or their licensees, sublicensees and subcontractors (to the extent applicable) rights in any such Intellectual Property Rights, (B) any other Intellectual Property Rights owned or controlled by Calithera or its Affiliates, or (C) this Agreement.

8.4 Third Party Licenses .

(a) If Incyte in good faith believes that it is necessary or useful to obtain a license under any Patent Rights of a Third Party in one or more countries of the Territory that are or would be infringed by the making, having made, using, selling, offering for sale or importing of a Licensed Compound or Licensed Product in the Hematology/Oncology Field in such countries of the Territory, then Incyte shall so inform Calithera of its determination, and shall have the right to obtain a license by negotiating and executing a license agreement with such Third Party to manufacture, Develop or Commercialize such Licensed Compounds and Licensed Products in the Hematology/Oncology Field in such countries in the Territory, regardless of whether Calithera agrees such license is necessary or useful for the manufacture, use, sale, offer for sale or import of the Licensed Compound or Licensed Product; provided that if Calithera

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reasonably believes that such license would have an adverse impact on the Retained Compounds or Non- Hematology/Oncology Field, then the Parties will thereafter discuss in good faith and endeavor to minimize any such impact.   

(b) Incyte shall not obtain a license from such Third Party as described in Section 8.4(a) that is of broader scope than the Hematology/Oncology Field without Calithera’s prior written consent, not to be unreasonably withheld, conditioned or delayed.

(c) If Incyte seeks and obtains, in accordance with Sections 8.4(a) and 8.4(b), a license under Patent Rights of a Third Party to avoid current or future infringement based on the making, having made, using, selling, offering for sale or importing of Licensed Compounds or Licensed Products in the Hematology/Oncology Field in the Territory, then responsibility for any associated royalties, up-front license fee or other acquisition cost and milestones (“ Third Party Payments ”) shall be handled as follows: (i) [ * ] and (ii) [ * ]; provided that [ * ].  Calithera shall be solely responsible for one hundred percent (100%) of all payments for any Intellectual Property Rights under the Calithera In-License Agreements.

(d) If Calithera enters into any license agreement with a Third Party after the Effective Date under which it receives a license to Patents or Know-How that are within the definition of Calithera IP, (i) Calithera shall disclose all material terms of such license agreement to Incyte for review a reasonable amount of time in advance of Calithera’s anticipated entry into such license agreement and shall take into consideration all reasonable comments made by Incyte with respect thereto and (ii) notwithstanding the definition of Calithera IP, any Patents or Know-How licensed to Calithera pursuant to such license agreement will not be sublicensed to Incyte hereunder unless (A) Incyte provides Calithera with written notice of its desire to obtain such sublicense, prior to Calithera’s entry into such license agreement, (B) Incyte assumes all obligations of such license agreement that are applicable to sublicensees thereunder that are specifically identified by Calithera in writing to Incyte in advance, (C) Incyte acknowledges in writing that its sublicense under such license agreement is subject to the terms and conditions of such license agreement, and (D) Incyte agrees to pay to Calithera all payments that become due to the Third Party licensor on account of Incyte’s receipt of such sublicense and exploitation of the rights thereunder, and a reasonable allocation of any other amounts (e.g., upfront payment) thereunder; provided that any such amounts paid by Incyte to Calithera will be considered Third Party Payments subject to the terms of Section 8.4(c) .  Incyte shall make all payments due to Calithera as described in the preceding subsection (D) prior to the due date therefor under the applicable license agreement, but in any event shall have [ * ] from the date of Incyte’s receipt of an invoice from Calithera therefor to make such payment.

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ARTICLE IX

FINANCIAL PROVISIONS

9.1 License Fee .  In partial consideration of the licenses and rights granted to Incyte hereunder, within [ * ] after the Effective Date, Calithera shall submit an invoice to Incyte for a one-time, non-creditable, non-refundable license fee of Forty-Five Million U.S. Dollars (USD 45,000,000), which Incyte shall pay within [ * ] after receipt.

9.2 Milestone Payments .  Incyte shall pay Calithera the following amounts after the first achievement by or on behalf of Incyte, its Affiliates or its sublicensees of the corresponding milestone events set forth below:

(a) Development Milestones .  The following development milestones shall apply for Licensed Compounds and Licensed Products (as applicable):

 

Development Milestone Events***

Payments

 

First Indication

Second Indication

Third Indication

1.[ * ]

[ * ]

[ * ]

[ * ]

2.[ * ]

[ * ]

[ * ]

* ]

3.[ * ]

[ * ]

[ * ]

[ * ]

4.[ * ]

[ * ]

[ * ]

[ * ]

5.[ * ]

[ * ]

[ * ]

[ * ]

6.[ * ]

[ * ]

[ * ]

* ]

7.[ * ]

[ * ]

[ * ]

[ * ]

8.[ * ]

[ * ]

[ * ]

[ * ]

9.[ * ]

[ * ]

[ * ]

[ * ]

10.[ * ]

[ * ]

[ * ]

[ * ]

11.[ * ]

[ * ]

[ * ]

[ * ]

Total Development Milestones

USD [ * ],000,000

**Development Milestone Event shall only be applicable if Calithera exercises the Co-Development Opt-Out Right or undergoes an Auto Opt-Out Event.

*** Development Milestone Event Payments shall only be paid once per applicable Indication (i.e., the First, Second and Third Indications), upon the first occurrence of the applicable event in such Indication, for the first Licensed Compound or Licensed Product (as applicable) that achieves such event with respect to such Indication.  

 

If, with respect to any particular Licensed Product and Indication, any of Development Milestone Events (1)-(4) has not been achieved as defined above (each, an “ Unachieved DME ”), but a subsequent later-stage Clinical Trial (e.g., a Phase III Study started subsequent to an Unachieved DME in a Phase II Study) is Initiated with the same Licensed Product in the same Indication, and in the same paradigm as a single agent or a combination, as applicable based on the Unachieved DME, then (i) [ * ].  For clarity, each of Development Milestone Event Payments (4)-(11) is due and owing under this Section 9.2(a) for achievement of the corresponding Development Milestone Event by a Licensed Product as either a single agent or a combination agent, but not both. For example, [ * ].  As a second example, [ * ].  In addition, specifically with respect to Development Milestone Event (4), [ * ].

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(b) Sales Milestones .

(i) Subject to Sections 9.2(b)(ii) and 9.2(b)(iii), Incyte shall make non-refundable, non-creditable, one-time payments to Calithera as set forth below upon the first achievement of Annual Net Sales of a Licensed Product that meets or exceeds the thresholds set forth below:  

 

Annual Net Sales Threshold

Milestone Payment

Annual Net Sales of a Licensed Product equal to or greater than USD [ * ]

[ * ]

Annual Net Sales of a Licensed Product equal to or greater than USD [ * ]

[ * ]

Annual Net Sales of a Licensed Product equal to or greater than USD [ * ]

[ * ]

Annual Net Sales of a Licensed Product equal to or greater than USD [ * ]

[ * ]

Annual Net Sales of a Licensed Product equal to or greater than USD [ * ]

[ * ]

Total Aggregate Annual Net Sales Milestone Payments

USD [ * ],000,000

 

(ii) Unless Calithera exercises the Co-Development Opt-Out Right or there is an Auto Opt-Out Event, (A) the Annual Net Sales Thresholds set forth above in Section 9.2(b)(i) shall be solely limited to Annual Net Sales of Licensed Product which occur and are booked outside of the United States, (B) all Annual Net Sales Thresholds shall be reduced by      [ * ] and (C) the corresponding Milestone Payments shall be reduced by [ * ].  For clarity, upon Calithera’s exercise of the Co-Development Opt-Out Right, or upon an Auto Opt-Out Event, (x) the Annual Net Sales Thresholds shall be based on Annual Net Sales throughout the Territory, and (y) corresponding Milestone Payments shall be as set forth above in Section 9.2(b)(i).

(iii) The Annual Net Sales Milestone Payments shall only be paid once, upon the first occurrence of the applicable Annual Net Sales Threshold event, for the first Licensed Product that achieves such event.   To the extent more than one Annual Net Sales Milestone Event occurs in a Calendar Year, all of such corresponding Annual Net Sales Milestone Payments shall be due, upon the occurrence of each such event.

(c) One-Time Payment .  None of the payments listed in this Section 9.2 shall be payable more than once, and each shall be payable at the first achievement of a milestone event for a Licensed Compound or Licensed Product (as applicable) and shall not be payable again if subsequently another Licensed Compound or Licensed Product achieves the same milestone event for such Indication (as applicable).  For clarity, any payments due under Section 9.2(a) (but not Section 9.2(b)) shall be subject to reduction in accordance with Section 8.4(c); provided that in no event will any milestone payment be reduced below [ * ] of the amounts set forth above.  

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(d) Payment Procedures .  Incyte shall provide Calithera with written notice of the achievement of each milestone eve nt: within [ * ] after achievement of the milestone event set forth in Section 9.2(a) and within [ * ] after the end of any Calendar Quarter in whi ch a milestone set forth in Section 9.2(b) is achieved; provided that, Incyte shall additionally provide Calithera with a reasonable estimate of (a) the development milestone amounts it would owe upon achievement of a particular development milestone within [ * ] after the achievement of the applicable milestone event set forth in Section 9.2(a) ; and (b) the sales milestone amounts it would owe upon achievement of a particular sales milestone within [ * ] after the end of the applicable Calendar Quarter in which the applicable milestone set fort h in Section 9.2(b) is achieved.  For clarity, such estimates shall be non-binding on Incyte and for informational purposes only.  Incyte shall pay to Calithera, by wire transfer to an account designated by Calithera, the applicable non-refundable, non-creditable milestone payments listed above: (1) with respect to milestone events set forth in Section 9.2(a) , within [ * ] after Incyte’s receipt of invoice and (2) with respect to all milestone events set forth in Section 9.2(b) , within [ * ] after the end of the applicable Calendar Quarter; provided that Incyte has received the relevant invoice from Calithera for such sales milestones [ * ] after Calithera’s receipt of notice from Incyte of the achievement of such sales milestones.  In the event Incyte does not receive Calithera’s invoice within [ * ] as described above, Incyte’s obligation to pay such amount within [ * ] after the end of the applicable Calendar Quarter shall be extended by the number of days that lapse between the date Incyte should have received Calithera’s invoice and the date Incyte ac tually receives such invoice.

9.3 Royalties .

(a) Incyte Royalties to Calithera.

(i) Subject to Sections 5.2(c)(iv) and 9.3(a)(ii), Incyte shall pay to Calithera, on a Licensed Product-by-Licensed Product basis, royalties on Annual Net Sales of each Licensed Product outside of the United States, as calculated by multiplying the following rates by the corresponding amount of Annual Net Sales of such Licensed Product achieved outside the United States in the applicable Calendar Year :

 

Annual Net Sales of Each Licensed Product Outside the U.S.

Royalty Rate

On Annual Net Sales less than or equal to USD [ * ]

1[ * ]%

On Annual Net Sales greater than USD [ * ]

[ * ]%

On Annual Net Sales greater than USD [ * ]

[ * ]%

On Annual Net Sales greater than USD [ * ]

[ * ]%

 

(ii) Notwithstanding anything herein to the contrary but subject to Section 5.2(c)(iv) , if Calithera exercises the Co-Development Opt-Out Right or if there is an Auto Opt-Out Event, royalties to be paid on Annual Net Sales of each Licensed Product under this Section 9.3(a) shall be expanded to include such sales occurring in the United States (in accordance with Section 5.2(c)(iv), including the Incremental Royalty) and be paid on the Annual Net Sales of each Licensed Product in the Territory.

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(b) Royalty Term .  Royalties payable under this Section 9.3 shall be paid by Incyte on a Licensed Product-by-Licensed Product and country-by-country basis from the Effective Date until the later of: (i) the last to expire of any Valid Claim Covering such Licensed Product in such country, (ii) the expiration of Regulatory Exclusivity for such Licensed Product in such country and (iii) [ * ] following First Commercial Sale of such Licensed Product in such country (each such term with respect to a Licensed Product and a country, a “ Royalty Term ”).  Notwithstanding the foregoing, on a Licensed Product-by-Licensed Product and country-by-country basis in [ * ], in the event that Generic Competition exists with respect to a Licens ed Product in the [ * ], then the royalty rates in such country for such Licensed Product will be reduced by [ * ] of the applicable rate in Section 9.3(a) during each Calendar Quarter in which such Generic Competition exists in such country.  If the foregoing royalty reductions do not apply in a particular country of the Territory, in the event that no Valid Claim Covering a Licensed Product exists in such country, then the royalty rates in such country will be reduced by [ * ] of the applicable rate in Section 9.3(a) during each Calendar Quar ter in which no such Valid Claim Covering a Licensed Product exists in such country.   Notwithstanding anything herein to the contrary, if the royalty rates under this Agreement have been reduced at a time when a claim of a pending patent application issues pursuant to the last proviso of Section 1.96 , the issuance of such claim shall not cause or be the basis for an increase in the then-current appli cable royalty rate.  For clarity, any payments due under this Section 9.3 shall be subject to reduction in accordance with Section 8.4(c) ; provided that in no event will the royalties for any Licensed Product and country in any Calendar Quarter be reduced [ * ] of the amounts otherwise due without such reduction except in the case of Generic Competition as set forth above (in which case the royalties payable under this Section 9.3 for any Calendar Quarter shall not be reduced    [ * ] .

(c) Effects of Expiration of Royalty Term .  Upon the expiration of the Royalty Term with respect to a Licensed Product in a country, the licenses granted by Calithera to Incyte pursuant to Section 2.1 shall be deemed to be fully paid-up, irrevocable and perpetual with respect to such Licensed Product in such country; provided tha t because Calithera’s license under the Calithera Know-How licensed from Mars will become non-exclusive upon the expiration of the applicable royalty term under the Mars Agreement for any Licensed Product and country, such perpetual license will be exclusive only with respect to Calithera, and not with respect to Mars.

9.4 Royalty Reports; Payments.   Within [ * ] after the end of any Calendar Quarter, Incyte shall provide Calithera with a report stating (a) the sales in units and in value of the Licensed Product made by Incyte, its Affiliates, licensees and sublicensees, as applicable, in the Territory (or applicable portion thereof), on a country-by-country and Licensed Product-by-Product basis, together with the calculation of the royalties due to Calithera, including the method used to calculate the royalties, and deductions to royalties as and to the extent permitted under this Agreement, including Section 8.4(c), and the exchange rates used, and (b) if applicable, the amount of any Incremental Royalty due under Section 5.2(c)(iv) or Section 9.5(d), the cumulative Incremental Royalty amounts paid to date, and the current balance of the Royalty Obligations Following Conversion; provided that Incyte shall additionally provide

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Calithera with a reasonable estimate of the sales in units a nd in value of the Licensed Product made by Incyte, its Affiliates, licensees and sublicensees, as applicable, in the Territory (or applicable portion thereof), on a country-by-country and Licensed Product-by-Product basis and corresponding, together with an estimation of the royalties due to Calithera as provided in clause (a) and (b) above, within [ * ] after the end of the applicable Calendar Quarter.  For clarity, such estimates shall be non-binding on Incyte and for informational purposes only.  Withou t limiting the foregoing, solely for purposes of calculating royalty payments hereunder, [ * ]. All royalty payments shall be made by Incyte to the bank account indicated by Calithera within [ * ] after the end of the applicable Calendar Quarter; provided that Calithera has issued the relevant invoice for royalty payment within [ * ] after Calithera’s receipt of the royalty report from Incyte.  In the event Calithera fails to issue an invoice within such [ * ] as described above, Incyte’s obligation to pay such amounts within [ * ] after the end of the applicable Calendar Quarter shall be extended by the number of days that lapse between the date Calithera should have invoiced Incyte and the date Calithera actually invoices Incyte.

9.5 Profit and Loss Sharing for Licensed Product in the United States .  Subject to Section 5.2(c)(iv) and provided that Calithera has not exercised the Co-Development Opt-Out Right, and an Auto Opt-Out Event has not occurred, the terms and conditions of this Section 9.5 shall govern each Party’s rights and obligations with respect to Net Profits and Net Losses relating to Net Sales of Licensed Product in the United States.   Calithera’s right to receive its percentage of Net Profits or its obligation to bear Net Losses hereunder shall be irrespective of whether Calithera has elected to exercise its Co-Detailing Right.

(a) In General .  Subject to Section 9.5(b), (i) Calithera shall receive forty percent (40%) of all Net Profits, and bear forty percent (40%) of all Net Losses, as applicable, with respect to the Licensed Product in the United States, and (i i) Incyte shall receive sixty percent (60%) of all Net Profits, and bear sixty percent (60%) of all Net Losses, as applicable, with respect to the Licensed Product in the United States.

(b) Calculation and Payment of Net Profit or Net Loss Share .  

(i) Com mencing with the first Calendar Quarter in which are incurred any Allowable Expenses, within [ * ] after the end of each Calendar Quarter, (x) Calithera shall report to Incyte’s Finance Officer all Allowable Expenses that were incurred by Calithera during such Calendar Quarter in the United States, and (y) Incyte shall report to Calithera’s Finance Officer its estimate of Net Sales in the U.S. and the aggregate amount of Allowable Expenses incurred by Incyte for each of the categories listed in clauses (a) through (m) of Section 1.3 incurred by Incyte during such Calendar Quarter; provided that Calithera shall prepare and deliver to Incyte’s Finance Officer an estimate of its Allowable Expenses within [ * ] following the end of each Calendar Quarter, and Calithera shall submit any supporting documentation for any invoices pursuant to which payments to a Third Party incurred by or on behalf of Calithera exceeded [ * ]; and will provide supporting documentation for invoices less than such [ * ] threshold, but only if expressly required by Incyte’s auditors in connection with a financial audit of Incyte, within [ * ] after its receipt of such request.  With respect to such reports of Allowable

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Expenses provided by Incyte, upon the reasonable request of Calithera’s Finance Officer, Incyte will provide, within [ * ] after Incyte’s receipt of such request, supporting documentation for any invoices pursuant to w hich payments to a Third Party incurred by or on behalf of Incyte exceeded [ * ]; and will provide supporting documentation for invoices less than such [ * ] threshold, but only if expressly required by Calithera’s auditors in connection with a financial a udit of Calithera.  

(ii) Within [ * ] after the end of each Calendar Quarter (or for the last Calendar Quarter in a Calendar Year, [ * ] after the end of such Calendar Quarter), Incyte shall deliver a consolidated financial statement setting forth the Net Profit or Net Loss for such Calendar Quarter in the U.S. to Calithera’s Finance Officer and promptly thereafter the Finance Officers of the Parties shall confer and calculate each Party’s share of Net Profit or Net Loss; provided that Incyte shall additionally provide Calithera with a reasonable estimate of the Net Profit or Net Loss for such Calendar Quarter in the U.S., within [ * ] after the end of such Calendar Quarter.  For clarity, such estimates shall be non-binding on Incyte and for informational purposes only.  Payments for Net Profit or Net Loss shall be made within [ * ] after the Finance Officers agree on such financial statement as set forth in Sections 9.5(c)and Section 9.5(d) below, as applicable; provided that with respect to any Net Losses resulting from Allowable Expenses in excess of [ * ] of the amount allocated to the applicable activities conducted during such Calendar Quarter in the annual Commercial Budget approved by the JSC for the Calendar Year in which such Calendar Quarter occurs (for this purpose, without giving effect to any amendment thereof), Calithera shall be required to pay its portion of such Net Losses within [ * ] after the Finance Officers agree on such financial statement; provided further that in the event of any disagreement with respect to such financial statement, each Party’s undisputed portion of such financial statement shall be paid in accordance with the foregoing timetable and the remaining, disputed portion shall be paid within [ * ] after the date on which the Parties, using good faith efforts, resolve the dispute or, if not so resolved within [ * ], within   [ * ] after such dispute is resolved pursuant to Section 14.1.  For clarity, an increase in the Commercial Budget in and of itself shall not be cause for a dispute of any financial statement.

(c) If there is a Net Profit for such Calendar Quarter, then Incyte shall pay to Calithera an amount equal to forty percent (40%) of the Net Profit for such Calendar Quarter, which amount may be subject to reduction in accordance with Section 8.4(c); or

(d) If there is a Net Loss for such Calendar Quarter, then Calithera shall make a reconciling payment to Incyte to assure that it bears forty percent (40%) of such Net Loss during such Calendar Quarter.  If Calithera fails to pay its share of Net Loss for any Calendar Quarter by the applicable due date , then a “ Commercial Auto Opt-Out Event ” will be deemed to have occurred, and Incyte shall send Calithera written notification thereof.  The effects of occurrence of such an Auto Opt-Out Event shall be the same as those set forth in Section 5.2(c), applied mutatis mutandis, as though such Commercial Auto Opt-Out Event were a Development Auto Opt-Out Event, provided that the payment of royalties under Section 9.3 shall commence as of the effective date of such Commercial Auto Opt-Out Event and shall not be retroactive.  In particular, (i) the amount of Net Losses remaining unpaid and giving rise to the Commercial

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Auto Opt-Out Event will be deemed a Payment Deficit, which Incyte shall recover pursuant to Section 5.2(c)(iv) ; and (ii) the Incremental Royalty on Annual Net Sales of Licensed Product in the United States will be paid commencing as of the effective date of such Commercial Auto Opt-Out Event solely until such time as t he aggregate payments received by Calithera from such Incremental Royalty equal [ * ] of the aggregate amount of Net Losses actually incurred by Calithera in accordance with this Section 9.5(d) plus [ * ] of the amount of Development Costs actually incurred by Calithera in accordance with Section 5.1(c) , and such sum will be included in the Royalty Obligations Following Conversion.   Such effects will be Incyte’s sole remedy, and Calithera’s sole liability, for Calithera’s failure to pay its share of Net Losses by the applicable due date.

(e) No separate payment shall be made for the last Calendar Quarter in any Calendar Year.  Instead, at the end of each such Calendar Year, a final reconciliation shall be conducted by the Finance Officers by comparing the share of Net Profit or Net Loss to which a Party is otherwise entitled for such Calendar Year pursuant to this Section 9.5 against the sum of all amounts (if any) previously paid or retained by such Party for prior Calendar Quarters during such Calendar Year, and the Parties shall make reconciling payments to one another no later than [ * ] after the end of such Calendar Quarter, if and as necessary to ensure that each Party receives for such Calendar Year its share of Net Profits and bears its share of Net Losses in accordance with this Section 9.5.

(f) Each Party shall record and account for its FTE effort to the extent that such FTE efforts are included in Allowable Expenses that are, or may in the future be, shared under this Agreement, and shall report such FTE effort to the applicable subcommittee of the JSC, if requested (such request not to be more than on a quarterly basis).  Each Party shall calculate and maintain records of FTE effort incurred by it in the same manner as used for other products developed by such Party, unless the Parties agree to employ other procedures, in which case such other procedures shall be applied equally to both Parties.

9.6 Financial Records.   The Parties shall keep complete and accurate books and records in accordance with the defined Accounting Standards. The parties will keep such books and records for at least [ * ] following the end of the Calendar Year to which they pertain.  Such books of accounts shall be kept at the principal place of business of the financial personnel with responsibility for preparing and maintaining such records. With respect to royalties and sales milestones, such records shall be in sufficient detail to support calculations of royalties and sales milestones due to Calithera.  Calithera and Incyte shall also keep complete and accurate records and books of accounts containing all data reasonably required for the calculation and verification of Allowable Expenses and Development Costs, including internal FTEs utilized by either Party in jointly funded Clinical Trials or other Development and co-Detailing activities.

9.7 Audits .

(a) Each Party may, upon request and at its expense (except as provided for herein), cause one of the “Big Four” accounting firms (Deloitte, Ernst & Young, KPMG or

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PricewaterhouseCoopers) selected by it (except one to whom the Auditee has a reasonable objection), (the “ Audit Team ”) to audit during ordinary business hours the books and records of the other Party and the correctness of any payment made or required to be made to or by such Party, and any report underlying such payment (or lack t hereof), pursuant to the terms of this Agreement. Prior to commencing its work pursuant to this agreement, the Audit Team shall enter into an appropriate confidentiality agreement with the Auditee.

(b) In respect of each audit of the Auditee’s books and records: (i) the Auditee may be audited only once per year, (ii) no records for any given year for an Auditee may be audited more than once; provided that the Auditee’s records shall still be made available if such records impact another financial year which is being audited, (iii) the Audit Rights Holder shall only be entitled to audit books and records of an Auditee from the three (3) Calendar Years prior to the Calendar Year in which the audit request is made.

(c) In order to initiate an audit for a particular Calendar Year, the Audit Right Holder must provide written notice to the Auditee. The Audit Rights Holder exercising its audit rights shall provide the Auditee with notice of one or more proposed dates of the audit not less than [ * ] prior to the first proposed date. The Auditee will reasonably accommodate the scheduling of such audit. The Auditee shall provide such Audit Team(s) with full and complete access to the applicable books and records and otherwise reasonably cooperate with such audit.

(d) The audit report and basis for any determination by an Audit Team shall be made available first for review and comment by the Auditee, and the Auditee shall have the right, at its expense, to request a further determination by such Audit Team as to matters which the Auditee disputes (to be completed no more than [ * ] after the first determination is provided to such Auditee and to be limited to the disputed matters). If the Parties disagree as to such further determination, the Audit Right Holder and the Auditee shall mutually select one of the “Big Four” accounting firms (Deloitte, Ernst & Young, KPMG or PricewaterhouseCoopers) that shall make a final determination as to the remaining matters in dispute that shall be binding upon the Parties. Such accountants shall not disclose to the Audit Rights Holder any information relating to the business of the Auditee except that which should properly have been contained in any report required hereunder or otherwise required to be disclosed to such Party to the extent necessary to verify the payments required to be made pursuant to the terms of this Agreement.

(e) If the audit shows any under-reporting or underpayment, or overcharging by any Party, that under-reporting, underpayment or overcharging shall be reported to the Audit Rights Holder and the underpaying or overcharging Party shall remit such underpayment or reimburse such overcompensation to the underpaid or overcharged Party within [ * ] after receiving the audit report. Further, if the audit for an audited period shows an under-reporting or underpayment or an overcharge by any Party for that period in excess of [ * ] of the amounts properly determined, the underpaying or overcharging Party, as the case may be, shall reimburse the applicable underpaid or overcharged Audit Rights Holder conducting the audit, for its respective audit fees and reasonable Out-of-Pocket Costs in connection with said audit, which reimbursement shall be made within [ * ] after receiving appropriate invoices and other support for such audit-related costs.

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(f) For the purposes of the audit rights described herein, an individual Party subject to an audit in any given year will be referred to as the “ Auditee ” and the other Party who has certain and respective rights to audit the books and records of the Auditee will be referred to as the “ Audit Rights Holder ”.

9.8 Tax Matters .

(a) The royalties, milestones and other amounts payable by pursuant to this Agreement (“ Payments ”) shall not be reduced on account of any taxes unless required by Law.  Each Party alone shall be responsible for paying any and all taxes (other than withholding taxes required by Law to be deducted and paid by the other Party on such Party’s behalf) levied on account of, or measured in whole or in part by reference to, any Payments it receives. The Parties will cooperate in good faith to obtain the benefit of any relevant tax treaties to minimize as far as reasonably possible any taxes which may be levied on any Payments. Each Party shall deduct or withhold from the Payments any taxes that it is required by Law to deduct or withhold. Notwithstanding the foregoing, if either Party is entitled under any applicable tax treaty to a reduction of the rate of, or the elimination of, applicable withholding tax, it may deliver to the other Party or the appropriate governmental authority (with the assistance of the other Party to the extent that this is reasonably required and is expressly requested in writing) the prescribed forms necessary to reduce the applicable rate of withholding or to relieve the other Party of its obligation to withhold tax, and the other Party shall apply the reduced rate of withholding tax, or dispense with withholding tax, as the case may be, provided that the other Party has received evidence of such delivery of all applicable forms (and, if necessary, its receipt of appropriate governmental authorization) at least [ * ] prior to the time that the Payment is due.  If, in accordance with the foregoing, a Party withholds any amount, it shall make timely payment to the proper taxing authority of the withheld amount, and send to the other Party proof of such payment within [ * ] following that latter payment.

(b) If a Party is required to make a payment to the other Party subject to a deduction or withholding of tax, then if such deduction or withholding of tax obligation arises as a result of any action by the paying Party, including an assignment of this Agreement, or any failure on the part of such Party to comply with applicable Law, that has the effect of modifying the tax treatment or increasing the tax of the other Party (a “ Withholding Tax Action ”), then the payment by such Party (in respect of which such deduction or withholding of tax is required to be made) shall be increased by the amount necessary (the “ Additional Tax ”) to ensure that the payee Party receives an amount equal to the amount that it would have received had no such Withholding Tax Action occurred, and the Additional Tax shall be deducted and withheld by the paying Party from the payment made.  The Additional Tax, along with any other tax deducted and withheld from the payment made, shall be timely remitted to the proper governmental authority for the account of the payee Party in accordance with applicable Law.

9.9 Currency Exchange; Manner and Place of Payment .  The currency exchange method set out in this Section 9.9 shall be applied for calculations of amounts for (a) Net Sales

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and royalties, and (b) Development Costs and Allowable Expenses. With respect to amounts invoiced in United States Dollars, all such amounts shall be expressed in United States Dollars. With respect to amounts invoiced in a currency other than United States Dollars, all such amounts shall be expressed both in the currency in which the amount was invoiced and in the United States Dollar equivalent. The Parties hereby agree that the following p rocedure is consistent with GAAP and as such the United States Dollar equivalent shall be calculated using the average of the last (bid) U.S. dollar/foreign currency rates for the last Business Day of each month in the Calendar Quarter for which Net Sales, royalties, Development Costs and Allowable Expenses, each as applicable, are being reported, as reported by The Wall Street Journal , for the conversion of foreign currency sales into United States Dollars.   All payments owed under this Agreement shall be made by electronic transfer in immediately available funds to a bank and account designated in writing by the receiving Party.

9.10 Late Payments .  The paying Party shall pay interest to the receiving Party on the aggregate amount of any payments that are not paid on or before the date such payments are due under this Agreement at a rate per annum equal to the lesser of the [ * ] or the highest rate permitted by applicable Law, calculated on the number of days such payments are paid after the date such payments are due; provided that with respect to any disputed payments, no interest payment shall be due until such dispute is resolved and the interest which shall be payable thereon shall be based on the finally-resolved amount of such payment, calculated from the original date on which the disputed payment was due through the date on which payment is actually made.

ARTICLE X

TERM AND TERMINATION

10.1 Term .  The term of this Agreement shall commence as of the Effective Date and, unless sooner terminated in accordance with the terms hereof or by mutual written agreement of the Parties, will continue on a country-by-country and Licensed Product-by-Licensed Product basis (a) until the end of the Royalty Term of such Licensed Product in such country, excluding the U.S. unless the Co-Development Opt-Out Right is exercised or an Auto Opt-Out Event occurs, and (b) for so long as Incyte is Developing or Commercializing such Licensed Product in the U.S. (unless the Co-Development Opt-Out Right is exercised or an Auto Opt-Out Event occurs, in which case clause (a) shall apply) (the “ Term ”).

10.2 Termination .  

(a) Termination for Convenience .  Incyte shall have the right to terminate this Agreement on a Licensed Product-by-Licensed Product and/or a country-by-country basis or in its entirety for convenience (i) upon [ * ] prior written notice to Calithera if such notice is delivered prior to the First Commercial Sale of a Licensed Product in the Hematology/Oncology Field in the Territory and (ii) upon [ * ] prior written notice to Calithera if such notice is delivered after the First Commercial Sale of a Licensed Product in the Hematology/Oncology Field in the Territory.  

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(b) Termination for Material Breach .  If either Party (the “ Non-Breaching Party ”) believes that the other Party (the “ Breaching Party ”) is in material breach of this Agreement, then the Non-Breaching Party may deliver notice of such breach to the Breaching Party describing such breach in sufficient detail to allow the Breaching Party to cure such breach .  If the Breaching Party fails to cure such breach, or take such steps as would be considered reasonable to effectively cure such breach in accorda nce with a cure plan reasonably acceptable to the Non-Breaching Party, within the [ * ] ( or [ * ] if such material breach is solely based upon a failure to pay any amounts due hereunder) period after delivery of such notice, the Non-Breaching Party may ter minate this Agreement upon written notice to the Breaching Party, which termination shall apply (A) on a country-by-country and/or Licensed Product-by-Licensed Product basis to which such breach relates, or (B) to the Agreement in its entirety, at the disc retion of the Non-Breaching Party; provided that Calithera shall not have the right to terminate this Agreement (in whole or in part) under this Section 10.2(b) [ * ].   If such breach is not based solely upon a failure to pay amounts due hereunder and is not capable of cure during such [ * ] period, and if during such [ * ] the Breaching Party is undertaking steps that would be considered reasonable t o effectively cure such breach in accordance with a cure plan reasonably acceptable to the Non-Breaching Party, the cure period shall be extended by an additional [ * ].   For clarity, in the event of an Auto Opt-Out Event, Incyte shall not have the right t o terminate this Agreement (in its in entirety or with respect to any Licensed Product or country ) under this Section 10.2(b) .

(c) Termination for Bankruptcy .  Each Party shall have the right to terminate this Agreement in its entirety upon written notice as a result of the other Party experiencing a Bankruptcy Event; provided that such termination shall be effective only if such event is not dismissed within [ * ] after the institution thereof.

(d) Termination Disputes .  If a Party gives notice of termination under Section 10.2(b) and the other Party disputes whether such notice was proper (including disputing the existence or materiality of the breach specified in a notice provided by the other Party under Section 10.2(b)), then the issue of whether or not this Agreement (in its entirety or with respect to a Licensed Product and/or country, as applicable) was properly terminated shall be resolved in accordance with ARTICLE XIV, and this Agreement shall remain in full force and effect until such dispute is resolved.  If as a result of such dispute resolution process it is determined that the notice of termination was proper, then such termination shall be effective on the date on which such dispute is resolved if it is not cured within the cure periods set forth in Section 10.2(b) (measured from the date on which the dispute is resolved).  On the other hand, if as a result of the dispute resolution process it is determined that the notice of termination was improper, then no termination shall have occurred and this Agreement shall remain in full force and effect.

(e) Termination for Patent Challenge .  Except to the extent the following is unenforceable under the Laws of a particular jurisdiction, either Party may terminate this Agreement in its entirety on [ * ] notice if the other Party or its Affiliates, individually or in association with any other Person, commences a legal action challenging the validity, enforceability or scope of any Calithera Patent Rights or Joint Patent Rights.

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10.3 Effects of Termination .

(a) Effects of Incyte Termination for Convenience, Bankruptcy or Patent Challenge or Calithera Termination for Incyte Breach, Bankruptcy or Patent Challenge .  If this Agreement is terminated by Incyte pursuant to Section 10.2(a), (c) or (e) or by Calithera pursuant to Sections 10.2(b), (c) or (e), then with respect to the terminated Licensed Product and/or country, or this Agreement in its entirety, as applicable, the following will apply :

(i) all rights and licenses granted by Calithera hereunder, including Se ctions 2.1, 4.1(c) and 9.3(c), shall immediately terminate; provided that Incyte may sell off its existing inventory of Licensed Products for a period of [ * ], subject to all payments accrued to Calithera under ARTICLE IX on account of any commercial sales (including milestone payments, royalty payments and Net Profit payments);

(ii) Incyte shall transition the conduct of any on-going Clinical Trials to Calithera or, at Calithera’s election (on a Clinical Trial-by-Clinical Trial basis), wind down such Clinical Trials, and Incyte shall remain [ * ] after the effective date of such termination, and shall be responsible for all costs and expenses incurred by the Parties to wind down any such Clinical Trial;

(iii) Incyte hereby grants to Calithera, effective only upon such termination, an exclusive, worldwide, fully-paid, perpetual, irrevocable, royalty-free license, with the right to grant multiple tiers of sublicenses, under Incyte’s rights in the Arising IP and under any other Patent Rights and Know-How Controlled by Incyte and its Affiliates that were actually used in connection with the terminated Licensed Products, to Develop, make, have made, use, import, export, register, offer for sale, sell and distribute terminated Licensed Products in the terminated country (ies) for all uses.  In addition, effective upon such termination, the scope of the license granted in Section 2.5(b), if any, will expand to include the Hematology/Oncology Field but such expansion shall be non-exclusive.

(iv) Incyte shall, as promptly as commerci ally practicable, assign to Calithera all right, title and interest in and to all trademarks used or to be used with any terminated Licensed Product in the terminated country (ies) (excluding any such trademarks that include, in whole or part, any corporate name or logo of Incyte or its Affiliates), including any goodwill associated therewith, and will transfer all promotional materials related to the terminated Licensed Products in the terminated country (ies) to Calithera.

(v) Incyte shall transfer and as sign (as applicable) to Calithera all Regulatory Documentation, safety databases, clinical databases and clinical samples for terminated Licensed Products in the terminated country (ies) that are owned or controlled by Incyte or its Affiliates.

(vi) Incyte shall, at no cost and expense to Calithera, provide reasonable consultation and assistance for a period of no more than [ * ] after the effective date

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of such termination for the purpose of transferring or transitioning to Calithera, (A) all Know-How in t he Arising IP not already in Calithera’s possession, and (B) at Calithera’s request, all then-existing Third Party agreements relating solely to terminated Licensed Products and that Incyte is able, using commercially reasonable efforts to, assign to Calit hera, in each case, to the extent reasonably necessary for Calithera to continue Developing, manufacturing, or Commercializing terminated Licensed Products in the terminated country (ies).  If any such agreement between Incyte and a Third Party is not assi gnable to Calithera (whether by such agreement’s terms or because such agreement does not relate solely to terminated Licensed Products in terminated country (ies)) but is otherwise reasonably necessary for Calithera to continue Developing, manufacturing, or Commercializing the terminated Licensed Products, then Incyte shall reasonably cooperate with Calithera to negotiate for the continuation of services from such Third Party.

(vii) If Incyte manufactures the terminated Licensed Product itself (and thus th ere is no manufacturing agreement to assign), then Incyte shall supply bulk Licensed Compound or finished terminated Licensed Product, as applicable, to Calithera or its designee, at a price equal to Incyte’s actual cost, for a reasonable period (not to exceed [ * ] after the effective date of such termination), pursuant to a supply agreement to be negotiated in good faith by the Parties.

(b) Incyte’s Rights Upon Calithera Breach .  If Incyte has the right to terminate this Agreement under Section 10.2(b) on account of Calithera’s uncured material breach, in its entirety or with respect to a Licensed Product and/or country, then Incyte shall have the right to elect by written notice to Calithera delivered within [ * ] after such right first takes effect, either (i) in lieu of termination, to continue this Agreement in effect and for Calithera to pay Incyte [ * ] of all damages finally awarded to Incyte pursuant to Section 14.1 (or otherwise agreed in writing by the Parties) on account of such uncured material breach by Calithera, which damages Incyte may recover by direct payment from Calithera or by setting off such damages against amounts payable to Calithera under this Agreement, until fully recovered, or (ii) to terminate this Agreement, the effects of which termination shall be as negotiated by the Parties as of such time and in light of the nature and extent of such uncured material breach.

10.4 Survival .   Termination or expiration of this Agreement shall not affect rights or obligations of the Parties under this Agreement that have accrued prior to the date of termination or expiration of this Agreement.  ARTICLE I (to the extent used in any surviving provisions), Section 2.3, 2.5(b), 9.3(c), 10.3(a)(iii) (solely with respect to the license grant therein), Section 5.2(c)(iv) (with respect to payment of the unrecovered portion of a Payment Deficit), Section 8.1, Section 9.3(b) (for the applicable Royalty Term, and, for purposes of calculating the royalties set forth therein, the applicable portions of Sections 8.4(c), 9.3, 9.6, 9.8, 9.9 and 9.10), Section 9.3(c), Section 9.5 (to the extent required to perform any applicable reconciliation process with respect to the payment obligations accrued as of the effective date of termination or expiration or as described in Section 10.3(a)(i)), Section 9.6 (with respect to obligation to maintain records), Section 9.7 (for the time period specified therein), Sections 9.8 through 9.10 (solely with respect to payment obligations accrued as of the effective date of termination or expiration),  Section

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10.3 , Section 10.4 , Section 10.5 , ARTICLE XI , Sections 12.1(d) and 12.5 , Sections 13.1 , 13.2 , 13.3 , 13.5 and 13.6 (for the time period specified in ARTICLE XIII ), and Sections 14.2 , 15.1 , 15.4 , 15.5 , 15.8 , 15.9 , 15.10 , 15.11 , 15.12 , 15.14 and 15.15 shall survive termination or expira tion (in accordance with Section 10.1 (Term) of this Agreement).  

10.5 Termination Not Sole Remedy .   Termination is not the sole remedy under this Agreement and, whether or not termination is effected and notwithstanding anything contained in this Agreement to the contrary all other remedies shall remain available except as agreed to otherwise herein.

ARTICLE XI

INDEMNIFICATION; LIMITATION OF LIABILITY

11.1 By Incyte .

(a) Incyte agrees, at Incyte’s cost and expense, to defend, indemnify and hold harmless Calithera and its Affiliates and their respective directors, officers, employees and agents (the “ Calithera Indemnified Parties ”) from and against any losses, costs, damages, fees or expenses arising out of any Third Party claim to the extent relating to (i) any breach by Incyte of any of its representations, warranties or covenants in this Agreement, (ii) the gross negligence or willful misconduct of any Incyte Indemnified Parties or any sublicensee of Incyte, and (iii) the Development, manufacture or Commercialization by or on behalf of Incyte, its Affiliates or sublicensees of any Licensed Compound or Licensed Product; provided that Incyte shall not defend, indemnify nor hold harmless Calithera Indemnified Parties from and against any losses, costs, damages, fees or expenses arising out of any Third Party claims for which Calithera is obligated to defend, indemnify or hold harmless the Incyte Indemnified Parties pursuant to Section 11.2.

(b) In the event of any such claim against the Calithera Indemnified Parties by any Third Party, Calithera shall promptly, and in any event within ten (10) Business Days, notify Incyte in writing of the claim.  Incyte shall have the right, exercisable by notice to Calithera within twenty (20) Business Days after receipt of notice from Incyte of the claim, to assume direction and control of the defense, litigation, settlement, appeal or other disposition of the claim (including the right to settle the claim solely for monetary consideration, but shall not have the right to otherwise settle the claim without Calithera’s prior written consent, such consent not to be unreasonably withheld, conditioned or delayed) with counsel selected by Incyte and reasonably acceptable to Calithera; provided that the failure to provide timely notice of a claim by a Third Party shall not limit a Calithera Indemnified Party’s right for indemnification hereunder except to the extent such failure results in actual prejudice to Incyte. The Calithera Indemnified Parties shall cooperate with Incyte and may, at their option and expense, be separately represented in any such action or proceeding.  Incyte shall not be liable for any litigation costs or expenses incurred by the Calithera Indemnified Parties without Incyte’s prior written authorization.  In addition, Incyte shall not be responsible for the indemnification or defense of any Incyte Indemnified Party to the extent arising from any gross negligence or

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intentional misconduct by any Calithera Indemnified Party or the breach by Calithera of any obligation or warranty under this Agreement , or any claims compromised or settled without its prior written consent.

(c) Notwithstanding anything to the contrary above, (i) in the event of any such claim against the Calithera Indemnified Parties by a governmental or criminal action seeking an injunction against Calithera, or (ii) if at the time that a claim for which indemnification may be sought under this Section 11.2, or at any time thereafter prior to the final resolution of such claim, a Bankruptcy Event of Incyte has occurred, Calithera shall have the right to control the defense, litigation, settlement, appeal or other disposition of the claim at Incyte’s expense.

11.2 By Calithera .  

(a) Calithera agrees, at Calithera’s cost and expense, to defend, indemnify and hold harmless Incyte and its Affiliates and their respective directors, officers, employees and agents (the “ Incyte Indemnified Parties ”) from and against any losses, costs, damages, fees or expenses arising out of any Third Party claim relating to (i) any breach by Calithera of any of its representations, warranties or covenants in this Agreement, (ii) the gross negligence or willful misconduct of any Calithera Indemnified Parties or any sublicensee of Calithera , (iii) the Development, manufacture or Detailing (as applicable) by or on behalf of Calithera, its Affiliates or sublicensees of any Licensed Compound or Licensed Product, (iv) the manufacture, development or commercialization by or on behalf of Calithera, its Affiliates or sublicensees of any Retained Compound or (v) Calithera’s conduct of any Calithera Combination Study that is not included in the Development Plan; provided that Calithera shall not defend, indemnify nor hold harmless Incyte Indemnified Parties from and against any losses, costs, damages, fees or expenses arising out of any Third Party claims for which Incyte is obligated to defend, indemnify or hold harmless the Calithera Indemnified Parties pursuant to Section 11.1.

(b) In the event of any such claim against the Incyte Indemnified Parties by any Third Party, Incyte shall promptly, and in any event within ten (10) Business Days, notify Calithera in writing of the claim.  Calithera shall have the right, exercisable by notice to Incyte within twenty (20) Business Days after receipt of notice from Incyte of the claim, to assume direction and control of the defense, litigation, settlement, appeal or other disposition of the claim (including the right to settle the claim solely for monetary consideration but shall not have the right to otherwise settle the claim without Incyte’s prior written consent, such consent not to be unreasonably withheld, conditioned or delayed) with counsel selected by Calithera and reasonably acceptable to Incyte; provided that the failure to provide timely notice of a claim by a Third Party shall not limit an Incyte Indemnified Party’s right for indemnification hereunder except to the extent such failure results in actual prejudice to Calithera.  The Incyte Indemnified Parties shall cooperate with Calithera and may, at their option and expense, be separately represented in any such action or proceeding.  Calithera shall not be liable for any litigation costs or expenses incurred by the Incyte Indemnified Parties without Calithera’s prior written authorization.  In addition, Calithera shall not be responsible for the indemnification or defense

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of any Incyte Indemnified Party to the extent arising from any gross negligence or intentional misconduct by any Incyte Indemnified Party, or the breach by Incyte of any representation, obligation or warranty under this Agreement, or any claims compromised or settled without its prior written consent.

(c) Notwithstanding anything to the contrary above: (i) in the event of any such claim against the Incyte Indemnified Parties by a governmental or criminal action seeking an injunction against Incyte, or (ii) if at the time that a claim for which indemnification may be sought under this Section 11.2, or at any time thereafter prior to the final resolution of such claim, a Bankruptcy Event of Calithera has occurred, Incyte shall have the right to control the defense, litigation, settlement, appeal or other disposition of the claim at Calithera’s expense.

11.3 Limitation of Liability .  EXCEPT WITH RESPECT TO A PARTY’S LIABILITY PURSUANT TO THIS ARTICLE XI, NEITHER PARTY SHALL BE LIABLE FOR SPECIAL, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR OTHER INDIRECT OR REMOTE DAMAGES, OR FOR LOSS OF PROFITS (OTHER THAN FOR NET PROFITS PAYABLE HEREUNDER), LOSS OF DATA OR LOSS OF USE DAMAGES, IN EACH CASE ARISING IN ANY WAY OUT OF THIS AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, WHETHER BASED UPON WARRANTY, CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSS.

11.4 Insurance .  Each Party shall maintain Third Party insurance and/or self-insurance, as applicable, including product liability insurance, with respect to its activities hereunder in amounts consistent with normal business practices of prudent companies similarly situated and sufficient to meet its obligations under this Agreement.   Each Party shall provide the other Party with evidence of such insurance upon request and shall provide the other Party with written notice at least [ * ] prior to the cancellation, non-renewal or material changes in such insurance.  Such insurance shall not be construed to create a limit of either Party’s liability with respect to its indemnification obligations under this ARTICLE XI.

ARTICLE XII

REPRESENTATIONS AND WARRANTIES AND COVENANTS

12.1 Representation of Authority; Consents .  Incyte and Calithera each represents and warrants and, as applicable, covenants to the other Party as of the Execution Date that:

(a) it has full right, power and authority to enter into this Agreement;

(b) this Agreement has been duly executed by such Party and constitutes a legal, valid and binding obligation of such Party, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other Laws relating to or affecting creditors’ rights generally and by general equitable principles and public policy constraints (including those pertaining to

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limitations and/or exclusions of liability, competition Laws, penalties and jurisdictional issues including conflicts of Laws);

(c) all necessary consents, approvals and authorizations of all government authorities and other Persons required to be obtained by such Party in connection with the execution, delivery and performance of this Agreement have been and shall be obtained;

(d) neither such Party nor any of its employees or agents performing hereunder have ever been, are currently, or are the subject of a proceeding that could lead to it or such employees or agents becoming, as applicable, a Debarred Entity or Debarred Individual, an Excluded Entity or Excluded Individual or a Convicted Entity or Convicted Individual.  If, during the Term, such Party, or any of its employees or agents performing hereunder, become or are the subject of a proceeding that could lead to a Person becoming, as applicable, a Debarred Entity or Debarred Individual, an Excluded Entity or Excluded Individual or a Convicted Entity or Convicted Individual, such Party shall immediately notify the other Party, and such other Party shall have the option, at its sole discretion, to either: (i) prohibit such Person from performing work under this Agreement or (ii) terminate all work being performed or to be performed by such Party pursuant to this Agreement. This provision shall survive termination or expiration of this Agreement. For purposes of this provision, the following definitions shall apply:

(i) A “Debarred Individual” is an individual who has been debarred by the FDA pursuant to 21 U. S.C. §335a (a) or (b) from providing services in any capacity to a Person that has an approved or pending drug or biological product application;

(ii) A “Debarred Entity” is a corporation, partnership or association that has been debarred by the FDA pursua nt to 21 U.S.C. §335a (a) or (b) from submitting or assisting in the submission of any abbreviated drug application, or a subsidiary or affiliate of a Debarred Entity;

(iii) An “Excluded Individual” or “Excluded Entity” is (A) an individual or entity, as a pplicable, who has been excluded, debarred, suspended or is otherwise ineligible to participate in federal health care programs such as Medicare or Medicaid by the Office of the Inspector General (OIG/HHS) of the U.S. Department of Health and Human Services, or (B) is an individual or entity, as applicable, who has been excluded, debarred, suspended or is otherwise ineligible to participate in federal procurement and non-procurement programs, including those produced by the U.S. General Services Administration (GSA);

(iv) A “Convicted Individual” or “Convicted Entity” is an individual or entity, as applicable, who has been convicted of a criminal offense that falls within the ambit of 21 U.S.C. §335a (a) or 42 U.S.C. §1320a - 7(a), but has not yet been exclu ded, debarred, suspended or otherwise declared ineligible;

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(e) such Party and its and its Affiliates’ employees and contractors shall not, in connection with the performance of their respective obligations under this Agreement, directly or indirectly throu gh Third Parties, pay, promise or offer to pay, or authorize the payment of, any money or give any promise or offer to give, or authorize the giving of anything of value to a public official or entity or other Person for purpose of obtaining or retaining b usiness for or with, or directing business to, any Person, including either Party (and each Party represents and warrants that as of the Execution Date, such Party, and to its knowledge, its and its Affiliates’ employees and contractors, have not directly or indirectly promised, offered or provided any corrupt payment, gratuity, emolument, bribe, kickback, illicit gift or hospitality or other illegal or unethical benefit to a public official or entity or any other Person in connection with the performance o f such Party’s obligations under this Agreement, and each Party covenants that it and its Affiliates’ employees and contractors shall not, directly or indirectly, engage in any of the foregoing);

(f) such Party shall promptly notify the other Party if such Party has been notified of a violation of the FCPA or any other applicable anti-corruption or export control law in connection with the performance of this Agreement or the Development, manufacture or Commercialization of Licensed Products;

(g) in connection with the performance of its obligations under this Agreement, such Party shall comply and shall cause its and its Affiliates’ employees and use commercially reasonable efforts to cause its contractors to comply with such Party’s own anti-corruption a nd anti-bribery policy, a copy of which will be provided to the other Party upon request;

(h) the other Party will have the right, upon reasonable prior written notice and during such Party’s regular business hours, to audit such Party’s books and records in the event that a factually well-grounded, suspected violation of any of the representations, warranties or covenants in this Section 12.1 needs to be investigated;

(i) In the event that such Party has violated any of the representations, warranties or covenants in this Section 12.1, such Party will cause its or its Affiliates’ personnel or others working under its direction or control to submit to periodic training that such Party will provide on FCPA compliance at such Party’s own expense;

(j) Such Party will, at the other Party’s request, annually certify to such other Party in writing such Party’s compliance, in connection with the performance of such Party’s obligations under this Agreement, with the representations, warranties or covenants in Section 12.1; and

(k) Each Party shall have the right to suspend or terminate this Agreement in its entirety if the other Party is successfully prosecuted and convicted by a governmental authority for a civil or criminal violation of the FCPA .

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12.2 No Conflict.   Each Party represents and warrants to the other Party that the execution and delivery of this Agreement and the p erformance of such Party’s obligations hereunder (a) do not conflict with or violate such Party’s corporate charter and bylaws or any requirement of applicable Laws and (b) do not and shall not conflict with, violate or breach or constitute a default or re quire any consent under, any oral or written contractual obligation of such Party, except in all cases for such conflicts, violations or breaches as would not individually or in the aggregate, have an adverse impact on the other Party’s rights hereunder.   Each Party agrees that it shall not during the Term grant any right, license, consent or privilege to any Third Party or otherwise undertake any action, either directly or indirectly, that would conflict with the rights granted to the other Party or interf ere with any obligations of such Party set forth in this Agreement.

12.3 Additional Calithera Representations and Warranties .  Calithera represents, warrants, and covenants that, as of the Execution Date, except as disclosed in Exhibit 12.3:

(a) Neither it nor any of its Affiliates or any of its or their licensees or sublicensees has received written notice of any claim or litigation which alleges any Intellectual Property Rights of a Third Party are infringed by (i) the use of the Calithera IP or (ii) the research, Development, manufacture or Commercialization of any Arginase Inhibitor in the Arginase Inhibitor Pool as it exists as of the Execution Date ;

(b) None of Calithera or any of its Affiliates has, to Calithera’s knowledge (after due inquiry), in the past infringed or is currently infringing any Patent Rights of a Third Party or misappropriated any Know-How of any Third Party through its or their activities related to the research, development, manufacture or, if applicable, commercialization of any Arginase Inhibitor in the Arginase Inhibitor Pool as it exists as of the Execution Date ;

(c) To the knowledge (after due inquiry) of Calithera and its Affiliates, (i) the research, Development, manufacture and Commercialization of the Licensed Compounds as contemplated as of the Execution Date under this Agreement will not infringe any Patent Rights of any Third Party or misappropriate any Know-How of a Third Party, in each case, in existence as of the Execution Date;

(d) There are no claims, judgments or settlements against or owed by Calithera or any of its Affiliates, nor, to the knowledge (after due inquiry) of Calithera or any of its Affiliates, any pending reissue, reexamination, interference, opposition or similar proceedings, with respect to any Arginase Inhibitor in the Arginase Inhibitor Pool as it exists as of the Execution Date or Calithera IP, and Calithera has not received written notice of any threatened claims or litigation regarding, or any reissue, reexamination, interference, opposition or similar proceedings seeking to invalidate or otherwise challenge, any Calithera IP;

(e) To the knowledge (after due inquiry) of Calithera and its Affiliates, no Third Party is infringing or misappropriating any Calithera IP;

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(f) (i) Calithera is the legal and beneficial owner of or has the right to grant to Incyte the rights granted herein to all Calithera IP, (ii) to the knowledge (after due inqu iry) of Calithera and its Affiliates, no Third Party has any right, interest or claim in or to the Calithera IP that would limit the rights granted to Incyte under this Agreement and (iii) all assignments to Calithera of ownership rights by any inventor of the Calithera Patent Rights are valid and enforceable and such assignments include all assignments necessary from any such inventors;

(g) All fees due as of the Execution Date that are required to maintain the Calithera IP have been paid in full and to Calithera’s knowledge (after due inquiry), the Calithera Patent Rights issued as of the Execution Date are valid and enforceable;

(h) Calithera has not granted to any Third Party rights that are inconsistent with Incyte’s rights hereunder and there are no agreements or arrangements to which Calithera or any of its Affiliates is a party relating to Licensed Compounds or Calithera IP that would limit the rights granted to Incyte under this Agreement;

(i) Calithera has disclosed to Incyte all material information known to it and its Affiliates and in its possession and control with respect to the Calithera IP and the safety and efficacy of all Arginase Inhibitors of the Arginase Inhibitor Pool as it exists as of the Execution Date ;

(j) All Calithera Patent Rights existing as of the Execution Date are listed on Exhibit 1.17 (the “ Existing Patents ”).   All Existing Patents are subsisting (except for any provisional applications and PCT applications that are no longer subsisting because such applications are, as of the Execution Date, past their statutory pendency dates);

(k) Calithera is (i) the sole and exclusive owner of the entire right, title and interest in the Existing Patents listed on Exhibit 1.17, Part 1, free of any encumbrance, lien, or claim of ownership by any Third Party, and (ii) the sole and exclusive licensee of the Existing Patents listed on Exhibit 1.17, Part 2 through one or more in-license agreements listed on Exhibit 1.17, Part 3 (“ Calithera In-License Agreements” ).   Calithera has the right to grant the licenses to Incyte set forth in this Agreement;

(l) Each Calithera In-License Agreement is, to Calithera’s knowledge (after due inquiry) , in full force and effect as of the Execution Date.  Calithera has provided, to the extent contractually permitted, a true and complete copy of each Calithera In-License Agreement to Incyte.  During the Term, Calithera will devote commercially reasonable efforts to maintain the Calithera In-License Agreements in full force and effect and to perform its obligations thereunder and to keep Incyte informed of any material development pertaining thereto that would reasonably be expected to have a material adverse effect on Incyte’s rights under this Agreement. During the Term, Calithera shall not, without the prior written approval of Incyte (i) amend any provision of a Calithera In-License Agreement (including Sections 2.2.3, 2.2.4, 2.3.4, 3.4 or 7 of the Mars Agreement) in a manner that would reasonably be expected to have a material adverse effect on Incyte’s rights under this Agreement or (ii) make any election or

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exer cise any right or option to terminate in whole or in part any Calithera In-License Agreement to the extent such election or exercise would reasonably be expected to have a material adverse effect on Incyte’s rights under this Agreement.  During the Term, C alithera shall promptly provide Incyte with written notice of any alleged, threatened, or actual breach of any Calithera In-License Agreement of which it becomes aware.  As of the Execution Date, none of Calithera, its Affiliates or to Calithera’s knowledg e (after due inquiry) any Third Party is in breach of any Calithera In-License Agreement ;

(m) Neither Calithera nor any of its Affiliates has previously entered into any agreement, whether a written or oral, with respect to the assignment, transfer, license, conveyance or encumbrance of, or otherwise assigned, transferred, licensed, conveyed or encumbered its right, title, or interest in or to the Existing Patents, Calithera Know-How, or any Arginase Inhibitor in the Arginase Inhibitor Pool as it exists of the Execution Date (including by granting any covenant not to sue with respect thereto) or any Patent Right or other intellectual property or proprietary right or information that would be an Existing Patent or Calithera Know-How but for such assignment, transfer, license, conveyance, or encumbrance and it will not enter into any such agreements or grant any such right, title, or interest to any Person that is inconsistent with the rights and licenses granted to Incyte under this Agreement;

(n) True, complete, and correct copies of: (i) the file wrapper and other documents and materials relating to the prosecution, defense, maintenance, validity, and enforceability of the Existing Patents and (ii) all material adverse information with respect to the safety and efficacy of all Arginase Inhibitors of the Arginase Inhibitor Pool as of the Execution Date known to Calithera, in each case have been provided or made available to Incyte prior to the Execution Date;

(o) The Existing Patents and the Calithera Know-How as of the Execution Date represent all Patent Rights and Know-How within Calithera’s or its Affiliates’ Control relating to the Arginase Inhibitors in the Arginase Inhibitor Pool as it exists as of the Execution Date , or the exploitation thereof.  To Calithera’s knowledge (after  due inquiry), each of the Existing Patents properly identifies each and every inventor of the claims thereof as determined in accordance with the Laws of the jurisdiction in which such Existing Patent is issued or such application is pending;

(p) Each Person who has or has had any rights in or to any Existing Patents listed on Exhibit 1.17, Part 1 or any Calithera Know-How (other than Calithera Know-How licensed under a Calithera In-License Agreement), has assigned and has executed an agreement assigning its entire right, title, and interest in and to such Existing Patents and Calithera Know-How to Calithera.  To Calithera’s knowledge (after due inquiry), no current officer, employee, agent, or consultant of Calithera or any of its Affiliates is in violation of any term of any assignment or other agreement regarding the protection of Patent Rights or other intellectual property or proprietary information of Calithera or such Affiliate or of any employment contract or any other contractual obligation relating to the relationship of any such Person with Calithera;

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(q) Calithera has obtained the right to use all Patent Rights, Know- How and all other intellectual property rights and materials (including with respect to any formulations and manufacturing processes and procedures) developed for Calithera by any Third Party under any agreements between Calithera and any such Third Party with respect to the Arginase Inhibitors in the Arginase Inhibitor Pool as it exists as of the Execution Date, and Calithera has the rights under each such agreement to grant Incyte the right to use such Patent Rights, Know-How and all other intellectual pr operty rights and materials in the research, Development, manufacture or Commercialization of the Licensed Compounds or the Licensed Products in the manner provided in this Agreement without restriction;

(r) Neither Calithera nor any of its Affiliates, nor any of its or their respective officers, employees, or agents has made an untrue statement of material fact or fraudulent statement to the FDA or any other Regulatory Authority with respect to the Development of the Arginase Inhibitors in the Arginase Inhibitor Pool as it exists as of the Execution Date , failed to disclose a material fact required to be disclosed to the FDA or any other Regulatory Authority with respect to the Development of the Arginase Inhibitors in the Arginase Inhibitor Pool as it exists as of the Execution Date , or committed an act, made a statement, or failed to make a statement, with respect to the Development of the Arginase Inhibitors in the Arginase Inhibitor Pool as it exists as of the Execution Date that could reasonably be expected to provide a basis for the FDA to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities”, set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto or any analogous Laws or policies in the Territory;

(s) There are no amounts that will be required to be paid by Incyte to a Third Party as a result of the research, Development, manufacture or Commercialization of the Licensed Compounds or Licensed Products that arise out of any agreement to which Calithera or any of its Affiliates is a party , except for Development Costs that are subject to Incyte’s Co-Development Funding Share Obligations;

(t) The inventions claimed or covered by the Existing Patents on Exhibit 1.17, Part 1, and to the knowledge (after due inquiry, except for the Mars Patents, as to which Calithera has not had the opportunity to so inquire) of Calithera, the Existing Patents on Exhibit 1.17, Part 2 (i) were not conceived, discovered, developed, or otherwise made in connection with any research activities funded, in whole or in part, by the federal government of the United States or any agency thereof, (ii) are not a “subject invention” as that term is described in 35 U.S.C. Section 201(f), and (iii) are not otherwise subject to the provisions of the Bayh-Dole Act; and

(u) The Know-How, documents and materials furnished to Incyte in connection with its period of diligence prior to the Execution Date do not (i) contain any untrue statement of a material fact, or (ii) omit to state any material fact necessary to make the statements or facts contained therein, in light of the circumstances under which they were made, not misleading.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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12.4 Covenants .

(a) During the Term, each Party and its respective Affiliates and sales representatives (as applicable) responsible for Detailing Licensed Product in the United States shall comply with Sections 7.3(b)(v) - 7.3(b)(ix), the SR Detail Incentives, Detailing Plan, Global Branding Strategy and all Laws applicable to Detailing Licensed Product in the United States.

(b) In accordance with Section 12.1(d), during the Term, neither Party nor its respective Affiliates will permit any employees, agents, or sales representatives responsible for Detailing Licensed Product in the United States, or any other Third Parties to carry out any obligations or to perform any activities under this Agreement if such Persons have been or become a Debarred Entity or Debarred Individual, an Excluded Entity or Excluded Individual or a Convicted Entity or Convicted Individual.    

12.5 Disclaimer of Warranty .  Nothing in this Agreement shall be construed as a representation made or warranty given by either Party that either Party will be successful in obtaining any Patent Rights, that any patents will issue based on pending applications or that any such pending applications or patents issued thereon will be valid. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, EACH PARTY EXPRESSLY DISCLAIMS, WAIVES, RELEASES AND RENOUNCES ANY WARRANTY, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT.

ARTICLE XIII

CONFIDENTIALITY

13.1 Confidential Information .  All Confidential Information of a Party (“ Disclosing Party ”) shall not be used by the other Party (the “ Receiving Party ”) except in performing its obligations or exercising rights explicitly granted under this Agreement and shall be maintained in confidence by the Receiving Party and shall not otherwise be disclosed by the Receiving Party to any Third Party, without the prior written consent of the Disclosing Party with respect to such Confidential Information, except to the extent that the Receiving Party can demonstrate that such Confidential Information:

(a) was known by the Receiving Party or its Affiliates prior to its date of disclosure to the Receiving Party; or

(b) is lawfully disclosed to the Receiving Party or its Affiliates by sources other than the Disclosing Party rightfully in possession of the Confidential Information; or

(c) becomes published or generally known to the public through no fault or omission on the part of the Receiving Party, its Affiliates or its sublicensees; or

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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(d) is independently developed by or for the Receiving Party or its Affiliates without reference to or reliance upon such Confidential Information, as established by written records.

Specific information shall not be deemed to be within any of the foregoing exclusions merely because it is embraced by more general information falling within those exclusions. Any confidential information disclosed under the Prior Confidentiality Agreement shall be treated as Confidential Information subject to the terms of this Agreement.  

Calithera may, pursuant to Section 2.7, provide to Incyte information related to Retained Compounds and Incyte’s Topping Rights under Section 2.7.  To the extent that any such information provided under Section 2.7 is in addition to, or different from, any information otherwise provided to Incyte under this Agreement (outside the scope of Section 2.7), such information will be “ Retained Product Information ” of Calithera and will be subject to the terms of this ARTICLE XIII with respect to Confidential Information of Calithera; provided that notwithstanding the foregoing in this Section 13.1, Incyte shall have the right to use the Retained Product Confidential Information solely for the purpose of evaluating whether to enter into a Retained Compound Transaction.

13.2 Permitted Disclosure .  The Receiving Party may provide the Disclosing Party’s Confidential Information:

(a) to the Receiving Party’s respective employees, consultants and advisors, and to the employees, consultants and advisors of such Party’s Affiliates, who have a need to know such information and materials for performing obligations or exercising rights expressly granted under this Agreement and have written obligations to treat such information and materials as confidential with respect to disclosure and use, which obligations are substantially similar to those set forth herein;

(b) to the Receiving Party’s potential or actual investors, financers, licensees, or acquirers as may be necessary in connection with their evaluation of such potential or actual investment, financing, licensing, or acquisition; provided that such Persons shall be subject to obligations of confidentiality and non-use with respect to such Confidential Information substantially similar to the obligations of confidentiality and non-use of the Receiving Party pursuant to this ARTICLE XIII;

(c) to patent offices in order to seek or obtain Patent Rights or to Regulatory Authorities in order to seek or obtain approval to conduct Clinical Trials or to gain Regulatory Approval with respect to the Licensed Product as contemplated by this Agreement; provided that such disclosure may be made only following reasonable notice to the Disclosing Party and to the extent reasonably necessary to seek or obtain such Patent Rights or approvals; or

(d) if such disclosure is required by Law (including regulations applicable to the public sale of securities) or to defend or prosecute litigation or arbitration; provided that prior

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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to such disclosure, to the extent permitted by Law, the Receiving Party promptly notifies the Disclosing Party of such requirement and, to the extent such disclosure relates to the Confidential Information of Mars (as defined in the Mars Agreement), if related to a valid order of a court of competent jurisdiction or other governmental or regulatory body of competent jurisdiction, uses Commerc ially Reasonable Efforts to give the Disclosing Party a reasonable opportunity to quash such order and/or to obtain a protective or order limiting such disclosure and/or requiring that the confidential information and documents that are the subject of such order be held in confidence by such court or governmental or regulatory body and/or, if disclosed, be used only for the purposes for which the order was issued, and the Receiving Party furnishes only that portion of the Disclosing Party’s Confidential Inf ormation that the Receiving Party is legally required to furnish and the Receiving Party uses reasonable efforts to secure confidential treatment of such information.

13.3 Publicity; Attribution; Terms of this Agreement; Non-Use of Names .

(a) Except as required by judicial order or applicable Law or as set forth below, neither Party shall make any public announcement concerning this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. The Party preparing any such public announcement shall provide the other Party with a draft thereof at least [ * ] prior to the date on which such Party would like to make the public announcement.  Notwithstanding the foregoing, the Parties shall issue a joint press release in the form attached as Exhibit 13.3(a), within one (1) Business Day after the Effective Date to announce the execution of this Agreement and describe the material financial and operational terms of this Agreement.  Neither Party shall use the name, trademark, trade name or logo of the other Party or its employees in any publicity, publication, presentation or news release relating to this Agreement or its subject matter, without the prior express written permission of the other Party.

(b) Notwithstanding the terms of this ARTICLE XIII,

(i) Either Party shall be permitted to disclose the existence and terms of this Agreement to the extent required, in the reasonable opinion of such Party’s legal counsel, to comply with applicable Laws, including the rules and regulations promu lgated by the SEC or any other governmental authority. Notwithstanding the foregoing, before disclosing this Agreement or any of the terms hereof pursuant to this Section 13.3(b), the Parties will coordinate in advance with each other in connection with the redaction of certain provisions of this Agreement with respect to any filings with the SEC, the NASDAQ Stock Market or any other stock exchange on which securities issued by a Party or a Party’s Affiliate are traded, and each Party will use Commercially Reasonable Efforts to seek confidential treatment for such terms as may be reasonably requested by the other Party; provided that each Party will ultimately retain control over what information that Party discloses to its relevant exchange, and provided further that the Parties will use their Commercially Reasonable Efforts to file redacted versions with any governing bodies which are consistent with redacted versions previously filed with any other governing bodies. Other than such obligation, neither Party (nor its Affiliates) will be obligated

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to consult with or obtain approval from the other Party with respect to any filings to the SEC the NASDAQ Stock Market or any other stock exchange.

(ii) Either Party may disclose the existence and terms of this Agreement in confidence to its attorneys and advisors, and to potential acquirers (and their respective professional attorneys and advisors), in connection with a potential merger, acquisition or reorganization and to existing and potential investors or lenders of such Party, as a part of their due diligence investigations, or to existing and potential licensees or sublicensees or to permitted assignees, in each case under an agreement to keep the terms of confidentiality and non-use substantially no less rigorous than the terms contained in this Agreement and to use such information solely for the purpose permitted pursuant to this Section 13.3(b).

(iii) Incy te may issue a press release or make a public disclosure relating to this Agreement or the Parties’ activities under this Agreement to the extent that such disclosure describes the commencement and/or “top-line” results of Clinical Trials conducted by Incyte for the Licensed Compound or Licensed Product, the achievement of any Development events with respect to the Licensed Compound or Licensed Product or the filing for or receipt of Regulatory Approval with respect to the Licensed Product.  Either Party may issue a press release in respect of the achievement of any milestone events under Section 9.2 or the termination of this Agreement.  Prior to making any such disclosure, the Party making the disclosure shall provide the other Party with a draft of such proposed disclosure at least [ * ] (or, to the extent timely disclosure of a material event is required by Law or stock exchange or stock market rules, such period of time sufficiently in advance of the disclosure so that the other Party will have the opportunity to comment upon the disclosure) prior to making any such disclosure, for the other Party’s review and comment, which shall be considered in good faith by the disclosing Party.  For clarity, the Party making such disclosure shall have the final say over the contents of such disclosure.

(c) For purposes of clarity, either Party may issue a press release or public announcement or make such other disclosure relating to this Agreement if the contents of such press release, public announcement or disclosure (i) has previously been made public other than through a breach of this Agreement by the issuing Party or its Affiliates or (ii) is contained in such Party’s financial statements prepared in accordance with Accounting Standards.

13.4 Publications .  

(a) Incyte and its Affiliates and Calithera and its Affiliates (unless Calithera has exercised the Co-Development Opt-Out or an Auto Opt-Out Event has occurred) shall have the right to make disclosures pertaining to any Licensed Compound or Licensed Product to Third Parties in Publications in accordance with the following procedure: the Party seeking to make a Publication (the “ Publishing Party ”) shall provide the other Party (the “ Non-Publishing Party ”) with an advance copy of the proposed Publication, and the Non-Publishing Party shall then have [ * ] prior to submission for any Publication in which to recommend any changes it reasonably believes are necessary to preserve any Patent Rights or Know-How belonging in whole or in part to the Non-Publishing Party. If the Non-Publishing Party informs the Publishing Party that such

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Publication, in the Non-Publishing Party’s reasonable judgment, could be expecte d to have a material adverse effect on any patentable invention owned by or licensed, in whole or in part, to the Non-Publishing Party (other than pursuant to a license granted under this Agreement), or on any Know-How which is Confidential Information of the Non-Publishing Party, the Publishing Party shall delay or prevent such Publication as follows: (i) with respect to a patentable invention, such Publication shall be delayed sufficiently long (not to exceed [ * ] to permit the timely preparation and fil ing of a patent application; and (ii) with respect to Know-How which is Confidential Information of the Non-Publishing Party, such Know-How shall be deleted from the Publication. The Publishing Party shall have the right to present its Publications, which Publications shall be subject to the requirements of this Section 13.4 , at scientific conferences, including at any conferences in any country in th e world.   

(b) With respect to any proposed Publication relating to any on-going (determined as of the date of its receipt of the proposed Publication from Calithera) or completed Clinical Trials conducted by or on behalf of Incyte or conducted or Operationalized by or on behalf of Calithera pursuant to the terms and conditions of this Agreement (excluding Calithera Combination Studies not conducted under the Development Plan, which are subject to Section 13.4(c) below): (i) Calithera shall have the right to present a Publication of the results of the CB-1158-101 Study at the 2017 meeting of the American Society of Clinical Oncology (ASCO) subject to Incyte’s rights in Section 13.4(a); and (ii) thereafter Incyte shall have final decision-making authority and approval over any such Publications (subject to Calithera’s rights to delay or prevent any such Publication for purposes of protecting its intellectual property as provided in Section 13.4(a) above) provided that the Parties, through the JDC, shall discuss prior to any such Publication which Party, in light of the subject matter and which Party had conducted or Operationalized such Clinical Trials, it recommends as the most appropriate Party to first publish the results of such Clinical Trial, and in which forums (e.g., scientific journal, abstract presented to any scientific audience, scientific conference, including slides and texts of oral or other public presentations, and any other oral, written or electronic disclosure directed to a scientific audience).

(c) Calithera shall have final decision-making authority on Publications related to any Calithera Combination Studies not conducted under the Development Plan (subject to Incyte’s review, comment (with respect to the Confidential Information of Incyte) and delay rights as outlined above in Section 13.4(a)) and any studies conducted with the Retained Compounds.

13.5 Term .  All obligations under this ARTICLE XIII shall expire ten (10) years following expiration or earlier termination of this Agreement.

13.6 Return of Confidential Information .  Upon the expiration or termination of this Agreement, the Receiving Party shall destroy (or, upon the Disclosing Party’s request, return) all Confidential Information received by the Receiving Party from the Disclosing Party (and all copies and reproductions thereof) and any notes, reports or other documents prepared by the Receiving Party which contain Confidential Information of the Disclosing Party. Nothing in this

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

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Section 13.6 shall require the alteration, modification, deletion or destruction of archival tapes or other electronic back-up media made in the ordinary course of business; provided that the Receiving Party shall continue to be bound by its obligations of confidentiality and other obligations under this ARTICLE XIII with respect to any Confidential Information contained in such archival tapes or other electronic back-up media. The destruction of Confidential Information shall be certified in writing to the Disclosing Party by an authorized officer of the Receiving Party supervising such destruction. Notwithstanding the foregoing, (i) the Receiving Party may retain one copy of the Disclosing Party’s Confidential Information in its legal archives solely for the purpose of determining the Receiving Party’s continuing obligations under this ARTICLE XII I and (ii) the Receiving Party may retain the Disclosing Party’s Confidential Information and its own notes, reports and other documents (A) to the extent reasonably required (a) to exercis e the rights and licenses of the Receiving Party expressly surviving expiration or termination of this Agreement; (b) to perform the obligations of the Receiving Party expressly surviving expiration or termination of this Agreement; or (B) to the extent it is impracticable to not do so without incurring disproportionate cost. Notwithstanding the return or destruction of the Disclosing Party’s Confidential Information, the Receiving Party shall continue to be bound by its obligations of confidentiality and o ther obligations under this ARTICLE XIII .

ARTICLE XIV

DISPUTE RESOLUTION

14.1 Dispute Resolution Process .  Matters before the JSC and subcommittees shall be governed by the process specified in Section 3.5. Any controversy, claim or dispute arising out of or relating to this Agreement that is not subject to Section 3.5 shall be settled, if possible, through good faith negotiations between the Parties. If the Parties are unable to settle such dispute within [ * ], and a Party wishes to pursue the matter, the matter may be referred by either Party to the Executive Officers, who shall meet to attempt to resolve the dispute in good faith. Such resolution, if any, of a referred issue shall be final and binding on the Parties. All negotiations pursuant to this Section 14.1 are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence. If the Executive Officers are unable to settle the dispute within [ * ] (or sooner if the circumstances require that the dispute be settled more rapidly) after referral thereto pursuant to Section 14.1, then each Party reserves its right to any and all remedies available under Law or equity with respect to the dispute, subject to Section 14.2.

14.2 Injunctive Relief . Notwithstanding anything to the contrary in this ARTICLE XIV, any Party may seek immediate injunctive or other interim relief from any court of competent jurisdiction as necessary to enforce the provisions of ARTICLE XIII and to enforce and prevent infringement or misappropriation of the Patent Rights, Know-How or Confidential Information Controlled by such Party.  

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ARTICLE XV

MISCELLANEOUS

15.1 Governing Law .  This Agreement (and any claims or disputes arising out of or related thereto or to the transactions contemplated thereby or to the inducement of any party to enter therein, whether for breach of contract, tortious conduct, or otherwise and whether predicated on common law, statute or otherwise) shall in all respects be governed by and construed in accordance with the Laws of the State of Delaware, including all matters of construction, validity and performance, in each case without reference to any conflict of Law rules that might lead to the application of the Laws of any other jurisdiction.

15.2 Assignment .  Neither Party may assign its rights or obligations under this Agreement without the prior written consent of the other Party, except that without such prior written consent each Party may make such assignment to (a) an Affiliate and (b) a successor, whether in a merger, sale of stock, sale of assets or any other transaction, of all or substantially all of the business to which this Agreement relates.  Any purported assignment in contravention of this Section 15.2 shall be null and void and of no effect.  No assignment shall release either Party from responsibility for the performance of any accrued obligation of such Party hereunder.  This Agreement shall be binding upon and enforceable against the successor to or any permitted assignee from either of the Parties.

15.3 Change of Control .

(a) Calithera (or its successor) shall provide Incyte with written notice of any Change of Control of Calithera within [ * ] following the closing date of such transaction, unless such transaction is prior to such time publicly announced.

(b) [ * ].

(c) In the event of a Change of Control of Calithera, Calithera (or its successor) shall continue to maintain and fully support the Calithera IP in accordance with the terms of this Agreement.  

(d) In the event of a Change of Control of either Party, intellectual property rights of the acquiring party (together with any entities that were Affiliates of such Third Party immediately prior to such Acquisition) shall not be included in the technology licensed hereunder or otherwise subject to this Agreement.

15.4 Entire Agreement; Amendments .  This Agreement and the Exhibits referred to in this Agreement together with the Stock Purchase Agreement constitute the entire agreement between the Parties with respect to the subject matter hereof, and supersede all previous arrangements with respect to the subject matter hereof, whether written or oral, including the Prior Confidentiality Agreement. Any amendment or modification to this Agreement shall be made in writing signed by both Parties.

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15.5 Notices .  Notices to Incyte shall be addressed to:

Incyte Corporation

[ * ]

with copies to:

Incyte Corporation

[ * ]

and

Morgan, Lewis & Bockius LLP

502 Carnegie Center

Princeton, NJ 08540-6241

[ * ]

Notices to Calithera shall be addressed to:

Calithera Biosciences, Inc.

[ * ]

with a copy to:

Cooley LLP

3175 Hanover St.

Palo Alto, CA 94304

Attention: Barbara A. Kosacz

Facsimile No.: (650) 849-7400

Either Party may change its address to which notices shall be sent by giving notice to the other Party in the manner herein provided.  All reports, approvals, and notices required or permitted by this Agreement to be given to a Party (each a “ Notice ”) shall be given in writing, by personal delivery, telecopy or overnight courier, to the Party concerned at its address as set forth above (or at such other address as a Party may specify by written notice pursuant to this Section 15.5 to the other). All Notices shall be deemed effective, delivered and received (a) if given by personal delivery, or by overnight courier, when actually delivered and signed for, or (b) if given by facsimile, when such facsimile is transmitted to the facsimile number specified above and receipt therefor is confirmed.

15.6 Force Majeure .  No failure or omission by either Party in the performance of any obligation of this Agreement shall be deemed a breach of this Agreement or create any liability if the same shall arise from any Force Majeure Event; provided that the Party affected by such Force Majeure Event promptly notifies the other Party and uses diligent efforts to cure such failure or omission as soon as is practicable after the occurrence of one or more Force Majeure Events.

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15.7 Compliance with Laws .  Each Party shall perform its obligations under this Agreement in compliance with all applicable Laws.

15.8 Use of Names, Logos or Symbols .  Subject to Sections 7.4 and 13.3, no Party shall use the name, trademarks, logos, physical likeness, employee names or owner symbol of the other Party for any purpose, including private or public securities placements, without the prior written consent of the affected Party. Nothing contained in this Agreement shall be construed as granting either Party any rights or license to use any of the other Party’s trademarks or trade names or the names of any employees thereof, without separate, express written permission of the owner of such trademark or trade name or name.

15.9 Independent Contractors .  It is understood and agreed that the relationship between the Parties is that of independent contractors and that nothing in this Agreement shall be construed to create a joint venture or any relationship of employment, agency or partnership between the Parties to this Agreement. Neither Party is authorized to make any representations, commitments or statements of any kind on behalf of the other Party or to take any action that would bind the other Party except as explicitly provided in this Agreement. Furthermore, none of the transactions contemplated by this Agreement shall be construed as a partnership for any tax purposes.

15.10 Headings .  The captions or headings of the sections or other subdivisions hereof are inserted only as a matter of convenience or for reference and shall have no effect on the meaning of the provisions hereof.

15.11 No Implied Waivers; Rights Cumulative .  No failure on the part of Incyte or Calithera to exercise, and no delay by either Party in exercising, any right, power, remedy or privilege under this Agreement, or provided by statute or at Law or in equity or otherwise, shall impair, prejudice or constitute a waiver of any such right, power, remedy or privilege by such Party or be construed as a waiver of any breach of this Agreement or as an acquiescence therein by such Party, nor shall any single or partial exercise of any such right, power, remedy or privilege by a Party preclude any other or further exercise thereof or the exercise of any other right, power, remedy or privilege.

15.12 Severability .  If, under applicable Laws, any provision of this Agreement is invalid or unenforceable, or otherwise directly or indirectly affects the validity of any other material provision(s) of this Agreement (such invalid or unenforceable provision, a “ Severed Clause ”), this Agreement shall endure except for the Severed Clause. The Parties shall consult one another and use good faith efforts to agree upon a valid and enforceable provision that is a reasonable substitute for the Severed Clause in view of the intent of this Agreement.

15.13 Execution in Counterparts .  This 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 and the same instrument. Signatures provided by facsimile transmission or in Adobe TM Portable Document Format (PDF) sent by electronic mail shall be deemed to be original signatures.

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15.14 No Third Party Beneficiaries .   No Person other than Calithera and Incyte (and their respective permitted assignees) shall be deemed an intended beneficiary hereunder or have any right to enforce any obligation of this Agreement.

15.15 Exhibits .  In the event of inconsistencies between this Agreement and any exhibits or attachments hereto, the terms of this Agreement shall control.

15.16 Effective Date .  

(a) Unless terminated earlier pursuant to subsection (b) below, this Agreement shall be effective upon the later of the Execution Date and the Closing of the Stock Purchase Agreement (as such term is defined therein) (such date, the “ Effective Date ”).

(b) If the Stock Purchase Agreement is terminated prior to the Closing of the Stock Purchase Agreement (as such term is defined therein), this Agreement shall be terminated effective on the termination of the Stock Purchase Agreement, unless otherwise mutually agreed by the Parties in writing.

{Signature Page Follows}

 

 

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IN WITNESS WHEREOF, the Par ties have caused their duly authorized officers to execute and acknowledge this Agreement as of the date first written above.

 

CALITHERA BIOSCIENCES, INC.

 

INCYTE CORPORATION

 

 

 

 

 

 

 

By:

 

 

 

By:

 

 

Name:

 

Susan M. Molineaux, Ph.D.

 

Name:

 

Hervé Hoppenot

Title:

 

Founder, President and Chief Executive Officer

 

Title:

 

Chairman, President and Chief Executive Officer

 

 

 

{Signature Page to Collaboration and License Agreement}


 

Exhibit 1.6

Arginase Inhibitor Pool

[ * ]

 

 

 


 

Exhibit 1.17

Calithera Patent Rights

[ * ]

Part 3:

Calithera In-License

Collaboration and License Agreement by and between Calithera and Mars, Inc., by and through its Mars Symbioscience division, dated December 9, 2014.

 

 

 


 

Exhibit 4.1(a)

Initial Information Transfer Plan

[ * ]

 

 

 


 

Exhibit 4.2(a)

Initial Preclinical Studies and CMC Activities

[ * ]

 

 

 


 

Exhibit 5.1(b)

Initial Development Plan

[ * ]

 

 

 


 

Exhibit 5.3(a)

CB-1158-101 Study

The most recent protocol for the CB-1158-101 study as of the execution date of the Agreement is identified by the following:

[ * ]

 

 

 


 

Exhibit 12.3

Exceptions to Calithera Representations

[ * ]

 

 

 


 

Exhibit 13.3(a)

Form of Joint Press Release

 

 

 

For Immediate Release

Incyte and Calithera Biosciences Announce Global Collaboration

to Develop and Commercialize CB-1158, a First-in-class, Small Molecule Arginase Inhibitor

 

-

Incyte gains worldwide rights to CB-1158 for hematology and oncology indications

 

-

Calithera to receive a $45 million up-front payment and an $8 million equity investment

 

-

Incyte and Calithera to co-fund global development of CB-1158; Calithera eligible to receive share of profits in the U.S., potential milestones and royalties on future sales of CB-1158

 

-

Calithera conference call scheduled today at 8:30 a.m. ET, 5:30 a.m. PT

WILMINGTON, DE AND SOUTH SAN FRANCISCO, CA, January 30, 2017 – Incyte Corporation (NASDAQ: INCY) and Calithera Biosciences, Inc. (NASDAQ: CALA) announce today that the companies have entered into a global collaboration and license agreement for the research, development and commercialization of Calithera’s first-in-class, small molecule arginase inhibitor CB-1158 in hematology and oncology. CB-1158 is currently being studied in a monotherapy dose escalation trial and additional studies are expected to evaluate CB-1158 in combination with immuno-oncology agents, including anti-PD-1 therapy.

“Arginase-expressing tumor-infiltrating myeloid cells have been shown to play an important role in orchestrating the immune suppressive microenvironment in cancer; but, to date, therapeutic targeting of the arginase enzyme has remained elusive,” said Reid Huber, Ph.D., Incyte’s Chief Scientific Officer. “The addition of this first-in-class, small molecule arginase inhibitor, CB-1158, to our portfolio expands our innovative immuno-oncology pipeline and allows us to continue to advance our mission of discovering and developing immune-active combination therapies to treat patients with cancer.”

“In this strategic partnership with Incyte, CB-1158 is expected to be evaluated in multiple trials of novel therapeutic combinations, accelerating its development across hematological and oncology indications,” said Susan Molineaux, Ph.D., Calithera’s Chief Executive Officer.

 


 

Terms of the Collaboration

Under the terms of the collaboration and license agreement, Calithera will receive an up-front payment of $45 million from Incyte. In addition, Incyte will make an equity investment in Calithera of $8 million through the purchase of shares at a weighted average price of $4.65 per share.

Incyte will receive worldwide rights to develop and commercialize CB-1158 in hematology and oncology and Calithera will retain the right to research, develop and commercialize certain other arginase inhibitors in certain orphan indications.

Incyte and Calithera will jointly conduct and co-fund development of CB-1158, with Incyte leading global development activities.  Incyte will fund 70 percent of global development and Calithera will be responsible for the remaining 30 percent. In the event of regulatory approvals and commercialization of CB-1158, Incyte and Calithera will share in any future U.S. profits and losses (receiving 60 percent and 40 percent, respectively) and Calithera will be eligible to receive over $430 million in potential development, regulatory and commercialization milestones from Incyte. Per the terms of the agreement, Calithera will have the right to co-detail CB-1158 in the U.S. and also be eligible to receive from Incyte tiered royalties based on future ex-U.S. sales, with rates ranging from low-to-mid double-digits.

The agreement also provides that Calithera may choose to opt out of its co-funding obligations. In this scenario, Calithera would no longer be eligible to receive future U.S. profits and losses but would be eligible to receive up to $750 million in potential development, regulatory and commercialization milestones from Incyte and, if the product is approved and commercialized, also be eligible to receive reimbursement based on previous development expenditures incurred by Calithera and tiered royalty payments on future global sales of CB-1158, with rates ranging from low-to-mid double-digits.

The transaction is expected to close in the first quarter of 2017, subject to customary closing conditions.

Conference Call and Webcast Information

Calithera will host a conference call today to discuss this collaboration at 8:30 a.m. ET, 5:30 a.m. PT.  Participants may access the call by dialing (855)783-2599 (domestic) or (631)485-4877 (international) and referencing conference ID 58716954. The conference call will also be available by webcast in the Investor Relations page of Calithera’s website, www.calithera.com .  The archived webcast will remain available for replay for 30 days.

About Arginase

Arginase is an enzyme produced by immunosuppressive myeloid cells, including myeloid-derived suppressor cells (MDSCs) and neutrophils, which prevents T-cell and natural killer (NK) cell activation in tumors. Arginase exerts its immunosuppressive effect by depleting the amino acid arginine in the tumor microenvironment which subsequently prevents activation and proliferation of the immune system’s cytotoxic T-cells and NK-cells. Inhibition of arginase activity reverses this

 


 

immunosuppressive block and restor es T-cell function. In preclinical models, arginase inhibition has been shown to enhance anti-tumor immunity and inhibit tumor growth.

About Incyte

Incyte Corporation is a Wilmington, Delaware-based biopharmaceutical company focused on the discovery, development and commercialization of proprietary therapeutics.  For additional information on Incyte, please visit the Company’s website at www.incyte.com .

Follow @Incyte on Twitter at https://twitter.com/Incyte .

About Calithera Biosciences

Calithera Biosciences, Inc. is a clinical-stage pharmaceutical company focused on discovering and developing novel small molecule drugs directed against tumor metabolism and tumor immunology targets for the treatment of cancer.  Calithera’s lead product candidate, CB-839, is a potent, selective, reversible and orally bioavailable inhibitor of glutaminase. CB-839 takes advantage of the pronounced dependency many cancers have on the nutrient glutamine for growth and survival. It is currently being evaluated in Phase 1/2 clinical trials in combination with standard of care agents.  CB-1158 is a first-in-class immuno-oncology metabolic checkpoint inhibitor targeting arginase, a critical immunosuppressive enzyme responsible for T-cell suppression by myeloid-derived suppressor cells.  Arginase depletes arginine, a nutrient that is critical for the activation, growth and survival of the body’s cancer-fighting immune cells, known as cytotoxic T-cells.  CB-1158 is currently in a Phase I clinical trial.  Calithera is headquartered in South San Francisco, California.  For more information about Calithera, please visit www.calithera.com .

Forward-Looking Statements

Except for the historical information set forth herein, the matters set forth in this press release contain predictions, estimates and other forward-looking statements, including without limitation statements regarding: whether CB-1158 will successfully advance through clinical studies or will ever be approved for use in humans anywhere or will be commercialized anywhere successfully or at all; whether CB-1158 will be effective in the treatment of cancer; and whether and when any of the milestone payments or royalties under this collaboration will ever be paid by Incyte. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including unanticipated developments in and risks related to: obtaining approval for this planned collaboration; research and development efforts related to the collaboration programs; the possibility that results of clinical trials may be unsuccessful or insufficient to meet applicable regulatory standards or warrant continued development; other market or economic factors; unanticipated delays; each company’s ability to compete against parties with greater financial or other resources; greater than expected expenses; and such other risks detailed from time to time in each company’s reports filed with the Securities and Exchange Commission, including the Form 10-Q for the quarter ended September 30, 2016 filed by each company. Each party disclaims any intent or obligation to update these forward-looking statements.

# # #

 


 

Cont acts:

Incyte Media

Catalina Loveman

+1 302 498 6171

cloveman@incyte.com

Incyte Investors

Michael Booth, DPhil

+1 302 498 5914

mbooth@incyte.com

Calithera

Jennifer McNealey

+1 650-870-1071

ir@Calithera.com

 

EXHIBIT 10.2

THIRD AMENDMENT TO LEASE AGREEMENT

THIS THIRD AMENDMENT TO LEASE AGREEMENT (this “ Third Amendment ”) is made as of February 28, 2017, by and between ARE-TECHNOLOGY CENTER SSF, LLC , a Delaware limited liability company (“ Landlord ”), and CALITHERA BIOSCIENCES, INC. , a Delaware corporation (“ Tenant ”).

RECITALS

A.

Landlord and Tenant are now parties to that certain Lease Agreement dated as of February 14, 2013, as amended by that certain letter agreement dated as of March 31, 2013, as further amended by that certain First Amendment to Lease Agreement dated as of October 30, 2013, and as further amended by that certain Second Amendment to Lease Agreement dated as of February 23, 2016 (the “ Second Amendment ”) (as amended, the “ Lease ”).  Pursuant to the Lease, Tenant leases certain premises consisting of approximately 53,980 rentable square feet (“ Premises ”) in a building located at 343 Oyster Point Boulevard, South San Francisco, California, which Premises consists of (i) that certain premises containing approximately 17,507 rentable square feet, (ii) that certain premises containing approximately 11,573 rentable square feet, and (iii) that certain premises containing approximately 24,900 renta ble square feet. The Premises are more particularly described in the Lease. Capitalized terms used herein without definition shall have the meanings defined for such terms in the Lease.

B.

Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease as provided in this Third Amendment.

NOW, THEREFORE , in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

1.

Excess Rents .  Tenant has entered into a sublease agreement with respect to a portion of the Premises (the “ Encoded Genomics Sublease ”) with Encoded Genomics, Inc., a Delaware corporation.  Tenant may, during the term of the Encoded Genomics Sublease, retain 100% of the Excess Rent realized by Tenant under the Encoded Genomics Sublease and shall not be required to pay any Excess Rent to Landlord with respect to the Encoded Genomics Sublease.  Tenant shall be required to pay to Landlord 50% of Excess Rents realized by Tenant under any other sublease(s) of all or a portion of the Premises other than the Encoded Genomics Sublease pursuant to and in accordance with Section 22(d) .

2.

OFAC .  Tenant and all beneficial owners of Tenant are currently (a) in compliance with and shall at all times during the Term of the Lease remain in compliance with the regulations of the Office of Foreign Assets Control (“ OFAC ”) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto (collectively, the “ OFAC Rules ”), (b) not listed on, and shall not during the term of the Lease be listed on, the Specially Designated Nationals and Blocked Persons List, Foreign Sanctions Evaders List or the Sectoral Sanctions Identifications List, which are all maintained by OFAC and/or on any other similar list maintained by OFAC or other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom a U.S. person is prohibited from conducting business under the OFAC Rules.

3.

Security Deposit .   Section 7 of the Second Amendment is hereby amended to provide that Tenant shall be required to deliver to Landlord on or before February 28, 2017, either (a) an additional Letter of Credit which increases the amount of the existing Letter of Credit being held by Landlord to $440,000, or (b) an additional Letter of Credit in the amount of $394,482 as provided for in Section 7 of the Second Amendment.

721959618.7


 

4.

California Accessibility Disclosure .  For purposes of Section 1938(a) of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Project has not undergone inspection by a Certified Access Specialist (CASp).  In addition, the following notice is hereby provided pursuant to Section 1938(e) of the California Civil Code:  “A Certified Access Specialist (CASp) can inspect the subject pre mises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law.  Although state law does not require a CASp inspection of the subject premises, the commercial property owner o r lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant.  The parties shall mutually agree on the arrange ments for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.”  In furtherance o f and in connection with such notice:  (i) Tenant, having read such notice and understanding Tenant’s right to request and obtain a CASp inspection, hereby elects not to obtain such CASp inspection with respect to the Premises, Building and/or Project; and (ii) if Tenant subsequently elects to obtain a CASp inspection with respect to the Premises, Building and/or Project, then Landlord and Tenant hereby agree as follows (which constitute the mutual agreement of the parties as to the matters described in the last sentence of the foregoing notice):  (A) Tenant shall have the one-time right to request for and obtain a CASp inspection, which request must be made, if at all, in a written notice delivered by Tenant to Landlord; (B) any CASp inspection timely reque sted by Tenant shall be conducted (1) at a time mutually agreed to by Landlord and Tenant, (2) in a professional manner by a CASp designated by Landlord and without any testing that would damage the Premises, Building or Project in any way, and (3) at Tena nt’s sole cost and expense, including, without limitation, Tenant’s payment of the fee for such CASp inspection, the fee for any reports prepared by the CASp in connection with such CASp inspection (collectively, the “ CASp Reports ”) and all other costs and expenses in connection therewith; (C) the CASp Reports shall delivered by the CASp simultaneously to Landlord and Tenant; (D) Tenant, at its sole cost and expense, shall be responsible for making any improvements, alterations, modifications and/or repairs to or within the Premises to correct violations of construction-related accessibility standards including, without limitation, any violations disclosed by such CASp inspection; and (E) if such CASp inspection identifies any improvements, alterations, modi fications and/or repairs necessary to correct violations of construction-related accessibility standards relating to those items of the Building and Project located outside the Premises that are Landlord’s obligation to repair as set forth in the Lease, th en Landlord shall perform such improvements, alterations, modifications and/or repairs as and to the extent required by Legal Requirements to correct such violations, and Tenant shall reimburse Landlord for the cost of such improvements, alterations, modif ications and/or repairs within 10 business days after Tenant’s receipt of an invoice therefor from Landlord.

5.

Miscellaneous .

a. This Third Amendment is the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions.  This Third Amendment may be amended only by an agreement in writing, signed by the parties hereto.

b. Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively, “ Broker ”) in connection with the transaction reflected in this Third Amendment and that no Broker brought about this transaction, other than Savills Studley.  Landlord and Tenant each hereby agree to indemnify and hold the other harmless from and against any claims by any Broker, other than Savills Studley, claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to

 

721959618.7

2

 


 

this leasing transaction.  Landlord shall pay any commission due to Savills Studley pursuant to a separate written agreement between Landlord and Savills Studley.

c. This Third Amendment is binding upon and shall inure to the benefit of the parties and their respective successors and assigns.

d. This Third Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument.  The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Third Amendment attached thereto.

e. Except as amended and/or modified by this Third Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this Third Amendment.  In the event of any conflict between the provisions of this Third Amendment and the provisions of the Lease, the provisions of this Third Amendment shall prevail.  Whether or not specifically amended by this Third Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose and intent of this Third Amendment.

[Signatures are on the next page.]


 

721959618.7

3

 


 

IN WITNESS WHEREOF , the parties hereto have executed this Third Amendment as of the day and year first above written.

 

TENANT:

 

CALITHERA BIOSCIENCES, INC. ,

a Delaware corporation

 

 

 

By:

 

/s/ Susan Molineaux

Its:

 

President and Chief Executive Officer

 

 

LANDLORD:

 

 

 

ARE-TECHNOLOGY CENTER SSF, LLC ,

a Delaware limited liability company

 

 

 

By:

 

ALEXANDRIA REAL ESTATE EQUITIES, L.P.,

 

 

a Delaware limited partnership,

 

 

managing member

 

 

 

By:

 

ARE-QRS CORP.,

 

 

a Maryland corporation,

 

 

general partner

 

 

 

By:

 

/ s/ Eric S. Johnson

Its:

 

Senior Vice President, Legal Affairs

 

 

 

 

 

 

 

 

 

721959618.7

4

 

EXHIBIT 31.1

CERTIFICATIONS

 

I, Susan M. Molineaux, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Calithera Biosciences, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)):

 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

 

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

c)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2017

/s/ Susan M. Molineaux        

 

Susan M. Molineaux, Ph.D.

President and Chief Executive Officer

(Principal Executive Officer and

Principal Financial Officer)

 

EXHIBIT 32.1

CALITHERA BIOSCIENCES, INC.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Calithera Biosciences, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Susan M. Molineaux, President and Chief Executive Officer of the Company, certify, 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 my knowledge:

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 9, 2017

 

/s/ Susan M. Molineaux

Susan M. Molineaux, Ph.D.

President and Chief Executive Officer

(Principal Executive Officer and

Principal Financial Officer)

 

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Calithera Biosciences, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.