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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

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

 

For the fiscal year ended December 31, 2020    

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 1-36282

 

LA JOLLA PHARMACEUTICAL COMPANY

(Exact name of Registrant as specified in its Charter)

 

 

California

33-0361285

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

201 Jones Road, Suite 400

Waltham, MA

02451

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (617) 715-3600

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

     Common Stock, par value $0.0001 per share                

LJPC

The Nasdaq Capital Market

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes  No 

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 every Interactive Data File required to be submitted 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 such files).  Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

 

  

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on the Nasdaq Capital Market on June 30, 2020, was $78.0 million.

As of February 8, 2021, there were 27,428,407 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for its 2021 Annual Meeting of Shareholders, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended December 31, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

 


Table of Contents

 

 

 

 

Page

FORWARD-LOOKING STATEMENTS

1

PART I

 

 

Item 1.

Business

2

Item 1A.

Risk Factors

25

Item 1B.

Unresolved Staff Comments

37

Item 2.

Properties

37

Item 3.

Legal Proceedings

37

Item 4.

Mine Safety Disclosures

37

 

 

 

PART II

 

 

Item 5.

Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

38

Item 6.

Selected Financial Data

38

Item 7.

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

39

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

48

Item 8.

Financial Statements and Supplementary Data

49

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

49

Item 9A.

Controls and Procedures

49

Item 9B.

Other Information

49

 

 

 

PART III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

50

Item 11.

Executive Compensation

50

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

50

Item 13.

Certain Relationships and Related Transactions, and Director Independence

50

Item 14.

Principal Accountant Fees and Services

50

 

 

 

PART IV

 

 

Item 15.

Exhibits and Financial Statement Schedules

51

Item 16

Form 10-K Summary

53

 

SIGNATURES

54

 

i


FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Forward-looking statements can be identified by words such as “intends,” “believes,” “anticipates,” “indicates,” “plans,” “expects,” “suggests,” “may,” “should,” “potential,” “designed to,” “will” and similar expressions that predict or indicate future events and trends that do not relate to historical matters. You should not unduly rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

These forward-looking statements include, but are not limited to, statements regarding:

 

our ability to grow net sales of GIAPREZA™ (angiotensin II) and XERAVA™ (eravacycline);

 

our ability to maintain an effective sales and marketing organization;

 

the potential market size for GIAPREZA and XERAVA;

 

our ability to obtain an uninterrupted supply of GIAPREZA and XERAVA from our contract manufacturers;

 

GIAPREZA’s and XERAVA’s market exclusivity period as a result of the enforcement of regulatory exclusivity and the validity and enforceability of issued and pending patents covering GIAPREZA and XERAVA;

 

our ability to comply with our obligations under our license agreements;

 

our ability to realize the benefits from the acquisition of Tetraphase Pharmaceuticals, Inc.;

 

our ability to hire and retain key employees;

 

our overall financial performance, including but not limited to net product sales and net cash used for or provided by operating activities, including any milestone and/or royalty payments resulting from licensing agreements and any distributions received in connection with our non-voting profits interest;

 

our capital requirements and our potential need for, and ability to obtain, additional financing; and

 

our ability to maintain effective internal controls.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from the anticipated future results, performance or achievements expressed or implied by any forward-looking statements, including the factors described under the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You should evaluate all forward-looking statements made in this Annual Report on Form 10-K, including the documents we incorporate by reference, in the context of these risks, uncertainties and other factors.

We caution you that the risks, uncertainties and other factors referred to above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will affect us or our business in the way expected. All forward-looking statements in this Annual Report on Form 10-K apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this Annual Report on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

1


PART I

In this Annual Report on Form 10-K, all references to “we,” “our,” “us,” “La Jolla” or “the Company” refer to La Jolla Pharmaceutical Company, a California corporation, and our wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase Pharmaceuticals, Inc., on a consolidated basis.

Item 1.  Business

Overview

We are dedicated to the development and commercialization of innovative therapies that improve outcomes in patients suffering from life-threatening diseases. GIAPREZA™ (angiotensin II) injection is approved by the U.S. Food and Drug Administration (“FDA”) as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. XERAVA™ (eravacycline) for injection is approved by the FDA as a tetracycline class antibacterial indicated for the treatment of complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and older.

On July 28, 2020, La Jolla completed its acquisition of Tetraphase Pharmaceuticals, Inc. (“Tetraphase”), a biopharmaceutical company focused on commercializing XERAVA, for $43 million in upfront cash plus potential future cash payments of up to $16 million. Financial results for the period ending December 31, 2020 include Tetraphase’s financial results subsequent to the acquisition closing date of July 28, 2020.

On January 12, 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase, entered into an exclusive licensing agreement (the “PAION License”) with PAION AG and its wholly owned subsidiary (collectively, “PAION”) to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland whereby La Jolla is entitled to receive an upfront cash payment of $22.5 million plus potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments.

As of December 31, 2020, La Jolla had $21.2 million of cash and cash equivalents. On a pro forma basis, adjusting for $18.9 million of upfront net proceeds from the PAION License, net of the amounts due under the George Washington University and Harvard University license agreements, La Jolla had cash and cash equivalents of $40.1 million.

For the three and twelve months ended December 31, 2020, GIAPREZA U.S. net sales were $8.7 million and $29.3 million, respectively, up 19% and 27%, respectively, from the same periods in 2019. Subsequent to July 28, 2020 and through December 31, 2020, XERAVA U.S. net sales were $4.2 million. For the three and twelve months ended December 31, 2020, including the period prior to the acquisition of Tetraphase, XERAVA U.S. net sales were $2.3 million and $8.2 million, respectively, up 53% and 128%, respectively, from the same periods in 2019.


2


Product Portfolio

 

(1) U.S.: GIAPREZA is a vasoconstrictor to increase blood pressure in adults with septic or other distributive shock

European Union: GIAPREZA is indicated for the treatment of refractory hypotension in adults with septic or other distributive shock who remain hypotensive despite adequate volume restitution and application of catecholamines and other available vasopressor therapies

(2) U.S.: XERAVA is a tetracycline class antibacterial indicated for the treatment of cIAIs in patients 18 years of age and older

European Union: XERAVA is indicated for the treatment of cIAI in adults

 

GIAPREZA™ (angiotensin II)

GIAPREZA™ (angiotensin II) injection is approved by the FDA as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. GIAPREZA is approved by the European Commission (“EC”) for the treatment of refractory hypotension in adults with septic or other distributive shock who remain hypotensive despite adequate volume restitution and application of catecholamines and other available vasopressor therapies. GIAPREZA mimics the body’s endogenous angiotensin II peptide, which is central to the renin-angiotensin-aldosterone system (“RAAS”), which in turn regulates blood pressure. GIAPREZA is marketed in the U.S. by La Jolla Pharmaceutical Company on behalf of La Jolla Pharma, LLC, its wholly owned subsidiary, and will be marketed in Europe by PAION AG on behalf of La Jolla Pharma, LLC.


3


Distributive shock is the most common form of shock (Vincent et al, New England Journal of Medicine 2013; 369(18):1726−1734).

Types of Shock(1)

 

(1) Vincent et al, New England Journal of Medicine 2013; 369(18):1726−1734

 

Distributive shock is a leading cause of death in hospitalized patients. Septic shock accounts for more than 90% of distributive shock (Vincent et al, New England Journal of Medicine 2013; 369(18):1726–1734). Shock affects one-third of patients in the intensive care unit (“ICU”) (Sakr et al, Critical Care Medicine 2006; 34:589–597). The mortality rate of distributive shock exceeds that of most acute conditions requiring hospitalization.

Mortality Rate

 

(1) Based on the 28-day mortality rates of: (i) 35% from the vasopressin arm of Russell et al, New England Journal of Medicine 2008; 358:877–87; (ii) 49% from the norepinephrine arm of De Backer et al, New England Journal of Medicine 2010; 362:779–89; and (iii) 54% from the placebo arm (high-dose norepinephrine or equivalent) of Khanna et al, New England Journal of Medicine 2017; 377:419–430

(2) 30-day mortality rate from Medicare.gov

4


 

The RAAS is one of three systems that work in harmony to regulate blood pressure. GIAPREZA regulates blood pressure through the RAAS. Other therapeutic options regulate blood pressure through the adrenal system and vasopressin system.

In Healthy Individuals, Three Systems Work in Harmony to Regulate Blood Pressure

 

 


5


Annually in the U.S., approximately 130,000−200,000 patients fail to respond to current vasopressor options.

Response to Current Vasopressor Options

 

(1) Annually in the U.S.

(2) Year ended December 31, 2020 per Symphony Health Solutions

(3) Estimate based on Russell et al, New England Journal of Medicine 2008; 358:877−87 and Asfar et al, New England Journal of Medicine 2014; 370:1583−93

(4) Annual sales per Endo International plc SEC filings, divided by price per vial per Wolters Kluwer PriceRx

(5) Estimate based on Dunser et al, Circulation 2003; 107:2313−2319 and Gordon et al, Critical Care Medicine 2014; 42(6):1325−1333

(6) Year ended December 31, 2020 per Endo International plc SEC filings

(7) $212.38 per vial per Wolters Kluwer PriceRx, multiplied by 10 vials per patient

(8) Estimate based on: 35.4% 28-day mortality rate in vasopressin arm of Russell et al, New England Journal of Medicine 2008; 358:877–87; 48.5% 28-day mortality rate in norepinephrine arm of De Backer et al, New England Journal of Medicine 2010; 362:779–789; and 54.6% non-responder rate on vasopressin from Sacha et al, Annals of Intensive Care 2018; 8:35

 

 


6


Angiotensin II for the Treatment of High-Output Shock (“ATHOS-3”)

GIAPREZA was approved by the FDA and the EC based on the results of ATHOS-3, which were published in the New England Journal of Medicine in August 2017. ATHOS-3 was a multinational, randomized, double-blind, placebo-controlled study in which 321 adults with septic or other distributive shock who remained hypotensive despite fluid and vasopressor therapy received either GIAPREZA or placebo, both in addition to background vasopressor therapy. The primary endpoint was mean arterial pressure (“MAP”) response, defined as a MAP of 75 mm Hg or higher or an increase in MAP from baseline of at least 10 mm Hg without an increase in the dose of background vasopressors at Hour 3 (Khanna et al, New England Journal of Medicine 2017; 377:419–430).

ATHOS-3 Study Design(1)

 

MAP=mean arterial pressure

(1) Khanna et al, New England Journal of Medicine 2017; 377:419–430

(2) Standard-of-care vasopressors included norepinephrine, epinephrine, dopamine and vasopressin

 


7


GIAPREZA significantly improved blood pressure response. Specifically, the primary endpoint was achieved by 70% of GIAPREZA-treated patients compared to 23% of placebo-treated patients (p <0.0001).

Primary Endpoint: Mean Arterial Pressure Response(1),(2)

(1) GIAPREZA FDA prescribing information

(2) MAP response of 75 mm Hg or higher or an increase from baseline of at least 10 mm Hg at Hour 3 without an increase in the dose of background vasopressors

 

GIAPREZA provides the ability to rapidly achieve and adjust therapeutic response. GIAPREZA rapidly increased MAP with a median time to MAP response of approximately 5 minutes. The plasma half-life of GIAPREZA is less than 1 minute.

8


In addition, a positive survival trend was observed. Mortality through Day 28 was 46% on GIAPREZA and 54% on placebo (hazard ratio 0.78; 95% confidence interval 0.57–1.07).

Positive Survival Trend Observed (N=321)(1),(2)

 

(2) Khanna et al, New England Journal of Medicine 2017; 377:419–430

 

9


The most common adverse reactions that were reported in greater than 10% of GIAPREZA-treated patients were thromboembolic events.

Adverse Reactions Occurring in ≥4% of Patients Treated with GIAPREZA and ≥1.5% More Often than in Placebo-treated Patients(1)

 

(1) GIAPREZA FDA prescribing information

(2) Including arterial and venous thrombotic events

 

Note: There is a potential for venous and arterial thrombotic and thromboembolic events in patients who receive GIAPREZA. As stated in the GIAPREZA FDA prescribing information, use concurrent venous thromboembolism (“VTE”) prophylaxis.

 

Percentage of Patients Experiencing ≥1 Adverse Event, ≥1 Serious Adverse Event and Discontinuing Treatment Due to an Adverse Event(1)

 

(1) Khanna et al, New England Journal of Medicine 2017; 377:419–430

 


10


XERAVA (eravacycline)

XERAVA™ (eravacycline) for injection is approved by the FDA as a tetracycline class antibacterial indicated for the treatment of complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and older. XERAVA is approved by the EC for the treatment of cIAI in adults. XERAVA is marketed in the U.S. by Tetraphase Pharmaceuticals, Inc., a wholly owned subsidiary of La Jolla, and will be marketed in Europe by PAION AG on behalf of Tetraphase Pharmaceuticals, Inc.

cIAIs are the second most common source of severe sepsis in the ICU (Brun-Buisson et al, JAMA 1995; 274(12):968–974). cIAIs are defined as consequences of perforations of the gastrointestinal tract that result in contamination of the peritoneal space (Solomkin et al, Clinical Infectious Diseases 2018; 69(6):921–929).

Source of Severe Sepsis in the ICU (%)(1)

 

(1) Brun-Buisson et al, JAMA 1995; 274(12):968–974

 


11


The use of antimicrobial agents that have activity against gram-negative, gram-positive and anaerobic pathogens is strongly recommended for the empiric treatment (treatment without a specific pathogen diagnosis) of patients with cIAI. The increased prevalence of resistant bacteria makes the selection of appropriate treatment more challenging (Mazuski et al, Surgical Infections 2017; 18(1):1–76).

2,733 Baseline Pathogens in 846 Patients with cIAI

3.2 Pathogens/Patient(1)

 

(1) Data on file from IGNITE1 and IGNITE4 microbiologic intent-to-treat (micro-ITT) population

 

Approximately 3 million patients with cIAIs receive approximately 17 million days of broad-spectrum antibiotics.

~3 MM Patients with cIAIs Receive Broad-Spectrum Antibiotics

 

  (1) 2014 Decision Resources AMR Hospital Database

  (2) Annually in the U.S. and EU5 (France, Germany, Italy, Spain and the United Kingdom)

 


12


Investigating Gram-negative Infections Treated with Eravacycline (“IGNITE”)

XERAVA was approved by the FDA and the EC based on the results of IGNITE1 and IGNITE4, which were published in JAMA Surgery in March 2017 and Clinical Infectious Diseases in December 2018, respectively.

IGNITE1 was a multinational, randomized, double-blind, active-controlled study in 538 patients with clinical evidence of cIAIs requiring urgent surgical or percutaneous intervention who received either XERAVA or ertapenem. The primary endpoint was clinical cure, defined as complete resolution or significant improvement of signs or symptoms of the index infection, at the test of cure (“TOC”) visit. The TOC visit was conducted 25 to 31 calendar days after the first dose of the study drug was administered.

IGNITE4 was a multinational, randomized, double-blind, active controlled study in 499 patients with clinical evidence of cIAIs requiring urgent surgical or percutaneous intervention who received either XERAVA or meropenem. The primary endpoint was clinical cure, defined as complete resolution or significant improvement of signs or symptoms of the index infection, at the TOC visit. The TOC visit was conducted 25 to 31 calendar days after the first dose of the study drug was administered.

IGNITE1 and IGNITE4 Study Design

 

(1) Solomkin et al, JAMA Surgery 2017; 152(3):224-232  

(2) Solomkin et al, Clinical Infectious Diseases 2018; 69(6):921-9

(3) TOC visit was conducted 25 to 31 calendar days after the first dose of the study drug was administered

 


13


XERAVA demonstrated statistical noninferiority in clinical cure rate in the micro-ITT population, which included all randomized subjects who had baseline bacterial pathogens that caused cIAIs and against at least one of which the investigational drug has in vitro (in a test tube) antibacterial activity (N=846).

Primary Endpoint: Clinical Cure Rate(1)

 

(1) XERAVA FDA prescribing information

(2) Noninferiority margins of 10% and 12.5% were used for IGNITE1 and IGNITE4, respectively

 

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Clinical cure rates across patients with gram-negative, gram-positive and anaerobic pathogens, including those with resistant strains, are shown in the following tables.

Clinical Cure Rates at TOC by Selected Baseline Pathogens in the Micro-ITT Population(1)

 

N=Number of subjects in the micro-ITT Population; N1=Number of subjects with a specific pathogen; n=Number of subjects with a clinical cure at the TOC visit

(1) XERAVA FDA prescribing information

(2) Comparators included ertapenem and meropenem for IGNITE1 and IGNITE4, respectively

(3) Includes Streptococcus anginosus, Streptococcus constellatus, and Streptococcus intermedius

(4) Includes Bacteroides caccae, Bacteroides fragilis, Bacteroides ovatus, Bacteroides thetaiotaomicron, Bacteroides uniformis, Bacteroides vulgatus, Clostridium perfringens, and Parabacteroides distasonis

 


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XERAVA Demonstrated High Clinical Cure Rates Against Resistant Pathogens(1)

 

CEPH-R=cephalosporin-resistant; ESBL=extended-spectrum β-lactamases; MDR=multidrug resistance;

N=Number of subjects in the micro-ITT Population; N1=Number of subjects with a specific pathogen; n=Number of subjects with a clinical cure at the TOC visit

(1) Ditch et al, 2018 ASM Microbe Annual Meeting

(2) Comparators included ertapenem and meropenem for IGNITE1 and IGNITE4, respectively

(3) Data on file from IGNITE1 and IGNITE4 micro-ITT population

 

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The most common adverse reactions that were reported in XERAVA-treated patients in IGNITE1 and IGNITE4 were infusion site reactions.

Selected Adverse Reactions Reported in ≥1% of Patients Receiving XERAVA(1)

 

(1) XERAVA FDA prescribing information

(2) Comparators included ertapenem and meropenem for IGNITE1 and IGNITE4, respectively

(3) Infusion site reactions include: catheter/vessel puncture site pain, infusion site extravasation, infusion site hypoaesthesia, infusion/injection site phlebitis, infusion site thrombosis, injection site/vessel puncture site erythema, phlebitis, phlebitis superficial, thrombophlebitis, and vessel puncture site swelling

 

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Product Candidates

In connection with the acquisition of Tetraphase, we acquired the following product candidates that are in early stage clinical or preclinical development: (1) TP-6076, an IV formulation of a fully synthetic fluorocycline derivative for the treatment of certain multidrug-resistant gram-negative bacteria; (2) TP-271, an IV and oral formulation of a fully synthetic fluorocycline for the treatment of respiratory disease caused by bacterial biothreat and antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia; and (3) TP-2846, an IV formulation of a tetracycline for the treatment of acute myeloid leukemia. At this time, there are no active studies nor anticipated future studies for any of these product candidates. We intend to seek out-licensing opportunities for these product candidates; however, at this time, we are unable to predict the likelihood of successfully out-licensing any of these product candidates.

Sales and Marketing Organization

La Jolla employs an experienced sales and marketing team dedicated to the commercialization of GIAPREZA and XERAVA. As of December 31, 2020, this team consisted of 39 professionals, including 29 critical care specialists.

Customers

During the year ended December 31, 2020, 521 hospitals in the U.S. purchased GIAPREZA. During the year ended December 31, 2020, 750 hospitals and other healthcare organizations in the U.S. purchased XERAVA. Hospitals and other healthcare organizations purchase our products through a network of specialty and wholesale distributors. We do not believe that the loss of any one of these distributors would significantly impact our ability to distribute GIAPREZA or XERAVA, as we expect that sales volume would be absorbed by the remaining distributors. Due to the relatively short lead-time required to fill orders for GIAPREZA and XERAVA, backlog is not material to our business.

Competition

Catecholamines (primarily norepinephrine), which are available as generics and inexpensive, are typically used first line to treat distributive shock, while Vasostrict® (Endo International plc) is typically used second line. In the randomized, Phase 3 study ATHOS-3, GIAPREZA demonstrated clinical benefit in patients who were not adequately responding to available vasopressors, including catecholamines and Vasostrict. GIAPREZA’s principal competition as a treatment in patients not adequately responding to available vasopressors is the use of these same vasopressors, particularly norepinephrine, at increased doses. If we are unable to successfully change treatment practices, the commercial prospects for GIAPREZA will be limited, and our business will suffer.

XERAVA competes with a number of antibiotics that are currently marketed for the treatment of cIAI and other multidrug resistant infections, including: AVYCAZ (ceftazidime and avibactam, marketed by AbbVie Inc.); MERREM IV® (meropenem, marketed by AstraZeneca PLC); PRIMAXIN® (imipenem and cilastatin, marketed by Merck & Co., Inc.); RECARBRIO™ (imipenem, cilastatin, and relebactam, marketed by Merck & Co., Inc.); TYGACIL® (tigecycline, marketed by Pfizer Inc.); VABOMERE™ (meropenem and vaborbactam, marketed by Melinta Therapeutics, Inc.); ZERBAXA® (ceftolozane and tazobactam, marketed by Merck & Co., Inc.); ZOSYN® (piperacillin and tazobactam, marketed by Pfizer Inc.); and current and future generic versions of marketed antibiotics. If we are unable to successfully change treatment practices, the commercial prospects for XERAVA will be limited, and our business will suffer.


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Manufacturing

We do not currently own or operate manufacturing facilities for the production of GIAPREZA or XERAVA. We rely on third-party manufacturers to produce GIAPREZA and XERAVA and expect to continue to do so to meet our development and commercial needs. In all of our manufacturing agreements, we require that contract manufacturers produce active pharmaceutical ingredients (“APIs”) and drug products in accordance with the FDA’s current Good Manufacturing Practices (“cGMPs”) and all other applicable laws and regulations. We maintain confidentiality agreements with potential and existing manufacturers in order to protect our proprietary rights related to GIAPREZA and XERAVA. The long-term commercial success of GIAPREZA and XERAVA will depend in part on the ability of our contract manufacturers to supply cGMP-compliant API and drug product without interruption.

Regulatory Exclusivity

GIAPREZA and XERAVA are New Chemical Entities (“NCEs”) approved by the FDA. In the U.S., NCEs approved by the FDA are eligible for market exclusivity under the U.S. Federal Food, Drug, and Cosmetic Act (“FDCA”), which can prevent the approval of generic versions of the NCE for 5 to 7.5 years from the date of the initial approval of the NCE. Specifically, the FDCA provides a 5-year period of marketing exclusivity within the U.S. to the applicant that gains approval of an NDA for an NCE. A drug is an NCE if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an Abbreviated New Drug Application (“ANDA”) or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all of the data required for approval. However, an application may be submitted 4 years after the NDA approval of the NCE if it contains a certification of patent invalidity or non-infringement. This certification will trigger an automatic stay in the approval of any generic competition until the earlier of: (a) 30 months from the certification; or (b) a court ruling of patent invalidity or non-infringement for the relevant patents. In the absence of a court ruling, the 30-month stay will be extended by such amount of time (if any) that is required for 7.5 years to have elapsed from the date of NDA approval of the NCE.

Under the Generating Antibiotic Incentives Now (“GAIN”) provisions of the Food and Drug Administration Safety and Innovation Act (“FDASIA”), the FDA may designate a product as a qualified infectious disease product (“QIDP”). In order to receive this designation, a drug must qualify as an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections. We obtained a QIDP designation for the IV formulation of XERAVA for cIAI in July 2013. Upon approving an application for a QIDP, the FDA will extend by an additional five years any non-patent marketing exclusivity period awarded, such as a five-year exclusivity period awarded for an NCE. This extension is in addition to any pediatric exclusivity extension awarded. XERAVA has been awarded this five-year exclusivity under FDASIA.


19


Intellectual Property

Patents and other proprietary rights are important to our business. As of February 19, 2021, the intellectual property portfolio relating to GIAPREZA included 12 issued U.S. patents, 8 pending U.S. patent applications, 8 issued foreign patents, 45 pending foreign patent applications, and 1 international patent application filed under the Patent Cooperation Treaty (“PCT”). The issued U.S. patents, and patents that may issue from the pending U.S. patent applications, will expire between 2029 and 2038, absent any disclaimers, extensions, or adjustments of patent term. The foreign patents, and patents that may issue from the pending foreign patent applications, will expire between 2034 and 2037, absent any disclaimers, extensions, or adjustments of patent term. Patents that may issue from applications claiming priority to the PCT application will expire in 2040, absent any disclaimers, extensions, or adjustments of patent term.

As of February 19, 2021, we owned 2 issued U.S. patents, 1 pending U.S. patent application, 17 issued foreign patents and 5 pending foreign patent applications relating to XERAVA. The issued U.S. patents, and the patent that may issue from the pending U.S. patent application, will have an expiration date of August 7, 2029, absent any disclaimers, extensions or adjustments of patent term. The term of one of the U.S. patents has received 508 days of patent term adjustment. The foreign patents, and patents that may issue from the pending foreign applications, will likewise have an expiration date of August 7, 2029, absent any disclaimers, extensions or adjustments of patent term.

As of February 19, 2021, we also filed applications for Supplementary Protection Certificates based on European Patent No. 2323972 covering the composition of matter and use of XERAVA. Some applications have been granted and others are pending.

As of February 19, 2021, we also owned 1 pending U.S. patent application and 10 pending foreign patent applications that relate to crystalline forms of eravacycline. Any U.S. patent that may issue from the pending patent application will expire in 2037 absent any disclaimers, extensions, or adjustments of patent term. Likewise, any foreign patents that may issue from the pending foreign patent applications will expire in 2037.

The following table summarizes our issued patents and pending applications for GIAPREZA, XERAVA and other tetracycline-related intellectual property.

 

 

United States

 

Foreign (including PCT)

Description

 

Issued

 

Pending

 

Expiration

 

Issued

 

Pending

 

Expiration

GIAPREZA

 

12

 

8

 

2029−2038

 

8

 

45

 

2034−2040

XERAVA

 

2

 

2

 

2029−2037

 

17

 

15

 

2029−2037

Other

 

8

 

2

 

2029−2040

 

52

 

32

 

2029−2040

 

Material Contracts

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations.”

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Government Regulation

Pharmaceutical products, including GIAPREZA and XERAVA, are subject to extensive government regulation. In the U.S., the FDA regulates pharmaceutical products. FDA regulations govern the testing, research and development activities, manufacturing, quality, storage, advertising, promotion, labeling, sale and distribution of pharmaceutical products. Accordingly, there is a rigorous process for the approval of new drugs and ongoing oversight of marketed products. We may also be subject to foreign regulatory requirements governing clinical studies and drug products if products are tested or marketed abroad. The approval process outside of the U.S. varies from jurisdiction to jurisdiction and the time required may be longer or shorter than that required for FDA approval.

Regulation in the U.S.

The FDA testing and approval process requires substantial time, effort and financial resources. We cannot assure you that any of our product candidates will ever obtain approval. The FDA approval process for new drugs includes, without limitation:

 

preclinical studies;

 

submission in the U.S. of an IND for clinical studies conducted in the U.S.;

 

adequate and well-controlled clinical studies to establish safety and efficacy of the product;

 

review and approval of an NDA in the U.S.; and

 

inspection of the facilities used in the manufacturing of the drug to assess compliance with the FDA’s cGMP regulations.

Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs, which impose certain procedural and documentation requirements on us and our third-party manufacturers. Even after regulatory approval is obtained, under certain circumstances, such as later discovery of previously unknown safety risks, the FDA can withdraw approval or subject the drug to additional restrictions.

The FDA closely regulates the marketing and promotion of drugs. Drugs may only be marketed in a manner consistent with their FDA-approved labeling. Approval may be subject to post-marketing surveillance and other record-keeping and reporting obligations. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing.

The failure to comply with FDA’s requirements may result in adverse publicity, warning letters, corrective advertising, restrictions on marketing or manufacturing, refusals to review pending product applications, refusals to permit the import or export of products, seizures, injunctions, and civil and criminal penalties.

Third-party Payor Coverage and Reimbursement

In the U.S. and most major foreign markets, drugs like GIAPREZA and XERAVA that are administered in the hospital must be purchased by the hospital and generally are not reimbursed by third-party payors. Hospitals instead are reimbursed for patient cases based on patients’ diagnosed conditions under the U.S. Medicare diagnosis-related group (“DRG”) system or other like systems for non-Medicare patients in the U.S. and in most major foreign markets. Adoption of new drugs that are administered in the hospital generally occurs more slowly than adoption of new drugs that are taken on an outpatient basis, which generally are paid for by third-party payors.

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U.S. Health Care Fraud and Abuse Laws and Compliance Requirements

We are subject to various federal and state laws targeting fraud and abuse in the health care industry. These laws may impact, among other things, our sales and marketing efforts. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

 

The federal Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, an item or service reimbursable under a federal health care program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value, including for example gifts, cash payments, donations, the furnishing of supplies or equipment, waivers of payment, ownership interests, and providing any item, service or compensation for something other than fair market value.

 

Federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, which prohibits anyone from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services that are false or fraudulent. Although we may not submit claims directly to payors, manufacturers can be held liable under these laws in a variety of ways. These include: providing inaccurate billing or coding information to customers; improperly promoting a product’s off-label use; violating the federal Anti-Kickback Statute; or misreporting pricing information to government programs.

 

Provisions of the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created new federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any health care benefit program or making false statements in connection with the delivery of or payment for health care benefits, items or services.

 

The federal Physician Payment Sunshine Act requirements, under the Patient Protection and Affordable Care Act (“PPACA”), which require manufacturers of certain drugs and biologics to track and report to U.S. Centers for Medicare & Medicaid Services (“CMS”) payments and other transfers of value they make to U.S. physicians and teaching hospitals as well as physician ownership and investment interests in the manufacturer.

 

Provisions of HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations (“HITECH”), which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information.

 

Section 1927 of the Social Security Act, which requires that manufacturers of drugs and biological products covered by Medicaid report pricing information to CMS on a monthly and quarterly basis, including the best price available to any customer of the manufacturer, with certain exceptions for government programs, and pay prescription rebates to state Medicaid programs based on a statutory formula derived from reported pricing information.

 

State law equivalents of each of the above federal laws, such as the recently effective California Consumer Privacy Act, many of which differ from each other in significant ways and may not have the same effect, which complicates our compliance efforts.


22


Regulation in Non-U.S. Jurisdictions

In addition to regulations in the U.S., we may be subject to a variety of foreign regulations governing clinical studies and commercial sales and distribution of GIAPREZA, XERAVA or future products. For example, clinical studies conducted in the European Union must be done under a clinical trial application (“CTA”), which is usually supported by an Investigational Medicinal Product Dossier (“IMPD”), and the oversight of ethics committees. If we market GIAPREZA in foreign countries, we also will be subject to foreign regulatory requirements governing marketing approval for pharmaceutical products. The requirements governing the conduct of clinical studies, product approval, pricing and reimbursement vary widely from country to country. Whether or not FDA approval has been obtained, approval of a product by the regulatory authorities of foreign countries must be obtained before marketing the product in those countries. The approval process varies from country to country, and the time required for such approvals may differ substantially from that required for FDA approval. Foreign regulatory approval processes involve many of the risks associated with FDA marketing approval discussed above. There is no assurance that any FDA approval of any of our product candidates will result in similar foreign approvals or vice versa. The process for clinical studies in the European Union and other countries is similar, and studies are heavily scrutinized by the designated ethics committees and regulatory authorities. In addition, foreign regulations may include applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or other transfers of value to health care professionals and entities.

In Europe, the European Union General Data Protection Regulation (2016/679) (“GDPR”) contains provisions specifically directed at the processing of health information. The GDPR provides for potentially significant sanctions and contains extraterritoriality measures intended to bring non-EU companies under the regulation. In addition to the GDPR, individual countries in Europe and elsewhere in the world have enacted similar data privacy legislation. This legislation imposes increased compliance obligations and regulatory risk, including the potential for significant fines for noncompliance.

Other Laws and Regulations

We are subject to a variety of financial disclosure and securities trading regulations as a public company in the U.S., including laws relating to the oversight activities of the U.S. Securities and Exchange Commission (“SEC”) and the regulations of the Nasdaq Capital Market, on which our shares of common stock are traded. We are also subject to various laws and regulations relating to safe working conditions, laboratory practices and the experimental use of animals.

Human Capital

As of December 31, 2020, we employed 59 full-time equivalent employees. None of our employees are represented by labor unions or covered by collective bargaining agreements, and we consider our relations with our employees to be good. We also hire consultants and contract with third parties, as needed, to provide additional resources to support our business activities.

Our key human capital management objectives are to identify, recruit, integrate, retain and motivate our new and existing employees. We believe that our compensation and benefit programs are appropriately designed to attract and retain qualified talent. Employees receive an annual base salary and are eligible to earn performance-based cash bonuses. To create and maintain a successful work environment, we offer a comprehensive package of additional benefits that support the physical and mental health and wellness of all of our employees and their families. Additionally, we grant equity awards in order to allow for directors, officers, employees and consultants of La Jolla to share in the performance of the Company.


23


Corporate and Other Information

The Company was incorporated in Delaware in 1989 and reincorporated in California in 2012. Effective April 15, 2021, our principal executive offices will be located at 201 Jones Road, Suite 400, Waltham, Massachusetts 02451. Our telephone number is (617) 715-3600. Shares of our common stock trade on the Nasdaq Capital Market under the symbol “LJPC.” Our website address is www.ljpc.com. Information contained on or accessible through our website is not a part of this Annual Report on Form 10-K, and the inclusion of our website address in this Annual Report on Form 10-K is an inactive textual reference only.

We file electronically with the SEC our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make available on our website at www.ljpc.com, free of charge, copies of these reports as soon as reasonably practicable after filing or furnishing these reports with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.


24


Item 1A. Risk Factors

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the material risks and uncertainties described below before deciding whether to purchase shares of our common stock. In assessing these risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our audited financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our business, financial condition, results of operations, cash flow, reputation and prospects could be materially and adversely affected by any of these risks and uncertainties, including risks and uncertainties not currently known to us or that we currently do not believe to be material. In any such case, the trading price of shares of our common stock could decline, and you could lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

We are substantially dependent on the commercial success of GIAPREZA (angiotensin II) and XERAVA (eravacycline).

The success of our business is substantially dependent on our ability to successfully commercialize GIAPREZA™ (angiotensin II) and XERAVA™ (eravacycline). The market for effective pharmaceutical sales and marketing professionals is competitive, and maintaining these capabilities is expensive and challenging. If we are unable to maintain an effective sales and marketing organization, GIAPREZA and XERAVA sales could be adversely affected, and our business could suffer.

In the U.S. and most major foreign markets, drugs like GIAPREZA and XERAVA that are administered in the hospital must be purchased by the hospital and generally are not directly reimbursed by third-party payors. Hospitals instead are reimbursed for patient cases based on patients’ diagnosed conditions under the U.S. Medicare diagnosis-related group (“DRG”) system or other like systems for non-Medicare patients in the U.S. and in most major foreign markets. Adoption of new drugs that are administered in the hospital generally occurs more slowly than adoption of new drugs that are taken on an outpatient basis, which generally are paid for by third-party payors. If we are unsuccessful at convincing hospitals and health care providers to increase their rate of adoption of GIAPREZA and XERAVA, our business will suffer.

Catecholamines (primarily norepinephrine), which are available as generics and inexpensive, are typically used in the first line to treat distributive shock, while Vasostrict® (Endo International plc) is typically used in the second line. In the randomized, Phase 3 study ATHOS-3, GIAPREZA demonstrated clinical benefit in patients who were not adequately responding to available vasopressors, including catecholamines and Vasostrict. GIAPREZA’s principle competition as a treatment in patients not adequately responding to available vasopressors is the use of these same vasopressors, particularly norepinephrine, at increased doses. If we are unable to successfully change treatment practices, the commercial prospects for GIAPREZA will be limited, and our business will suffer.

XERAVA competes with a number of antibiotics that are currently marketed for the treatment of cIAI and other multidrug resistant infections, including: AVYCAZ (ceftazidime and avibactam, marketed by AbbVie Inc.); MERREM IV® (meropenem, marketed by AstraZeneca PLC); PRIMAXIN® (imipenem and cilastatin, marketed by Merck & Co., Inc.); RECARBRIO™ (imipenem, cilastatin, and relebactam, marketed by Merck & Co., Inc.); TYGACIL® (tigecycline, marketed by Pfizer Inc.); VABOMERE™ (meropenem and vaborbactam, marketed by Melinta Therapeutics, Inc.); ZERBAXA® (ceftolozane and tazobactam, marketed by Merck & Co., Inc.); ZOSYN® (piperacillin and tazobactam, marketed by Pfizer Inc.); and current and future generic versions of marketed antibiotics. If we are unable to successfully change treatment practices, the commercial prospects for XERAVA will be limited, and our business will suffer.

In an effort to remain competitive in the marketplace, we may determine, from time to time, to change our pricing, dosage forms and strengths, and other marketing strategies for GIAPREZA and XERAVA, including altering the amount or availability of discounts or rebates. Any such changes could have short-term or long-term negative impacts on our net sales, which would cause our business and results of

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operations to suffer. Price increases or changes to our marketing strategies may also negatively affect our reputation and our ability to secure and maintain reimbursement coverage for GIAPREZA and XERAVA, which could result in decreased demand and cause our business and results of operations to suffer. If we are unable to successfully price or market GIAPREZA or XERAVA, the commercial prospects for GIAPREZA and XERAVA will be limited, and our business will suffer.

Our estimates of the potential market sizes for GIAPREZA and XERAVA are based on prescription and sales data for relevant in-market products, the results of clinical studies, medical literature and other information. If the potential market sizes for GIAPREZA and XERAVA are smaller than our estimates, the commercial prospects for GIAPREZA and XERAVA may be limited, and our business may suffer.

The commercial success of GIAPREZA and XERAVA will depend on our ability to obtain an uninterrupted supply of GIAPREZA and XERAVA from our contract manufacturers.

We do not currently own or operate manufacturing facilities for the production of GIAPREZA or XERAVA. We rely on sole-source contract manufacturers to produce GIAPREZA and XERAVA and expect to continue to do so to meet our development and commercial needs. In all of our manufacturing agreements, we require that contract manufacturers produce active pharmaceutical ingredients (“APIs”) and drug products in accordance with the U.S. Food and Drug Administration’s (“FDA’s”) current Good Manufacturing Practices (“cGMPs”) and all other applicable laws and regulations. The long-term commercial success of GIAPREZA and XERAVA will depend in part on the ability of our contract manufacturers to supply cGMP-compliant API and drug product without interruption. If there is an interruption in the supply of GIAPREZA and XERAVA from our contract manufacturers, our business will suffer.

Our ability to realize the benefits from the acquisition of Tetraphase is substantially dependent on the commercial success of XERAVA.

Our ability to realize the benefits from the acquisition of Tetraphase is substantially dependent on our ability to successfully commercialize XERAVA. Combining with La Jolla may not accelerate XERAVA’s availability to patients in need, and our presence in the hospital may not increase with a second innovative therapy. If we are unsuccessful at convincing hospitals and health care providers to increase their rate of adoption of XERAVA, our sales could be adversely affected, and our business could suffer.

Product liability or other lawsuits against us could cause us to incur substantial liabilities and reduce GIAPREZA and XERAVA sales.

Patients suffering from distributive shock are gravely ill and have a high mortality rate. Although 28-day mortality in patients treated with GIAPREZA was lower than in patients treated with placebo in the randomized, Phase 3 study ATHOS-3, there was a higher incidence of arterial and venous thrombotic and thromboembolic events in patients treated with GIAPREZA in this study. Some patients who are treated with GIAPREZA will die due to their underlying illness or suffer adverse events (which may or may not be drug related). Additionally, patients suffering from cIAI may become gravely ill and may die due to underlying illness or suffer adverse events (which may or may not be drug related). As such, we may face product liability lawsuits. Although we carry product liability insurance, product liability lawsuits against us could cause us to incur substantial liabilities and reduce GIAPREZA and XERAVA sales. Furthermore, any such lawsuits could impair our business reputation and result in the initiation of investigations by regulators.

Additionally, we may not have and may not be able to obtain insurance on acceptable terms or with adequate coverage against potential liabilities or other losses if any claim or lawsuit is brought against us, regardless of the success or failure of the claim or lawsuit. Even where claims are submitted to insurance carriers for defense and indemnity, there can be no assurance that the claims will be fully covered by insurance or that the indemnitors or insurers will remain financially viable to cover the cost of such claims. Any such claims or lawsuits could materially impact our financial condition, and our business could suffer.

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Our ability to continue commercializing GIAPREZA is dependent on our fulfillment of contractual obligations under the royalty financing agreement with HealthCare Royalty Partners.

In May 2018, we closed a $125.0 million royalty financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the Royalty Agreement, we received $125.0 million in exchange for tiered royalty payments on worldwide net sales of GIAPREZA. HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA beginning April 1, 2018. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. Through December 31, 2021, the royalty rate will be a maximum of 10%. Starting January 1, 2022, the maximum royalty rate may increase by 4% if an agreed-upon, cumulative net product sales threshold has not been met, and, starting January 1, 2024, the maximum royalty rate may increase by an additional 4% if a different agreed-upon, cumulative net product sales threshold has not been met. The Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $225.0 million. The Royalty Agreement expires upon the first to occur of January 1, 2031 or when the maximum aggregate royalty payments have been made. The Royalty Agreement was entered into by our wholly owned subsidiary, La Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against La Jolla Pharmaceutical Company or any assets other than GIAPREZA. However, under the terms of the Royalty Agreement, La Jolla Pharma, LLC has certain obligations, including the obligation to use commercially reasonable and diligent efforts to commercialize GIAPREZA. If La Jolla Pharma, LLC is held to not have met these obligations, HCR would have the right to terminate the Royalty Agreement and demand payment from La Jolla Pharma, LLC of either $125.0 million or $225.0 million (depending on which obligation La Jolla Pharma, LLC is held to not have met), minus aggregate royalties already paid to HCR. In the event that La Jolla Pharma, LLC fails to timely pay such amount if and when due, HCR would have the right to foreclose on the GIAPREZA-related assets.

The commercial success of GIAPREZA and XERAVA in certain ex-US territories is dependent on the fulfillment of contractual obligations under the Company’s out-license agreements.

PAION AG License

On January 12, 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase, entered into an exclusive licensing agreement (the “PAION License”) with PAION AG and its wholly owned subsidiary (collectively, “PAION”). Pursuant to the PAION License, La Jolla granted PAION an exclusive license to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland (collectively, the “PAION Territory”). La Jolla is entitled to receive an upfront cash payment of $22.5 million plus potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments. In addition, royalties payable under the PAION License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction. Pursuant to the PAION License, PAION will be solely responsible for the future development and commercialization of GIAPREZA and XERAVA in the PAION Territory. PAION is required to use commercially reasonable efforts to commercialize GIAPREZA and XERAVA in the PAION Territory. The Company agreed to use commercially reasonable efforts to negotiate and enter into a separate commercial supply agreement to manufacture drug product for commercial supply. The Company has not yet entered into a commercial supply agreement with PAION, which would set the quantity and timing of commercial supply. The Company has not received any payments from PAION related to either royalties or commercial milestones. If the Company is held to not have met its commercial supply obligations, or if PAION is unable to successfully develop and commercialize GIAPREZA or XERAVA in the PAION Territory, the commercial prospects for GIAPREZA and XERAVA in the PAION Territory will be limited, and our business will suffer.

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Everest Medicines Limited License

In February 2018, Tetraphase entered into a license agreement with Everest Medicines Limited (“Everest”), which was subsequently amended and restated (the “Everest License”). Pursuant to the Everest License, Tetraphase granted Everest an exclusive license to develop and commercialize XERAVA for the treatment of cIAI and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Everest Territory”). The Company is eligible to receive up to an aggregate of $11.0 million in future clinical development and regulatory milestone payments and up to an aggregate of $20.0 million in sales milestone payments. The Company is also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Everest Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Everest Territory until the latest to occur of: (1) the last-to-expire of specified patent rights in such jurisdiction in the Everest Territory; (2) expiration of marketing or regulatory exclusivity in such jurisdiction in the Everest Territory; or (3) 10 years after the first commercial sale of a product in such jurisdiction in the Everest Territory. In addition, royalties payable under the Everest License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction, with any such reductions capped at certain percentages of the amounts otherwise payable during the applicable royalty payment period. Pursuant to the Everest License, Everest will be solely responsible for the development and commercialization of licensed products in the Everest Territory. The Company agreed to use commercially reasonable efforts to manufacture drug product for clinical development, which will be paid by Everest at the cost to manufacture, as well as manufacture drug product for commercial supply, which will be paid by Everest at cost plus a reasonable margin. The Company has not yet entered into a commercial supply agreement with Everest, which would set the quantity and timing of commercial supply. Subsequent to July 28, 2020 and through December 31, 2020, the Company has not received any payments from Everest related to either royalties or clinical development and regulatory milestones. If Tetraphase is held to not have met its commercial supply obligations, or if Everest is unable to successfully develop and commercialize XERAVA in the Everest Territory, the commercial prospects for XERAVA in the Everest Territory will be limited, and our business will suffer.

 

Our overall financial performance, including but not limited to net product sales and net cash used for or provided by operating activities, may not meet our expectations.

Our overall financial performance, including but not limited to net product sales and net cash used for or provided by operating activities, including any milestone and/or royalty payments resulting from licensing agreements and any distributions received in connection with our non-voting profits interest, is difficult to predict and may fluctuate from quarter to quarter and year to year. Historical financial performance may not be indicative of future financial performance. For example, our net product sales may be below expectations, and our costs to operate our business, including cost of product sales, research and development expenses and selling, general and administrative expenses, could exceed our estimates. Furthermore, we may not receive any future distributions in connection with our non-voting profits interest. If our overall financial performance does not meet our expectations, our business could suffer.

 

Our capital requirements and our potential need for, and ability to obtain, additional financing are uncertain.

As of December 31, 2020, we had cash and cash equivalents of $21.2 million. GIAPREZA and XERAVA are our approved products and our only sources of product revenue. The amount and timing of future funding requirements, if any, will depend on many factors, including the success of our commercialization efforts for GIAPREZA and XERAVA, and our ability to control expenses. If necessary, we will raise additional capital through equity or debt financings or collaboration agreements. We can provide no assurance that additional financing will be available to us on favorable terms, or at all. If we need to raise additional capital and are unable to do so, we may be forced to curtail or cease our operations.

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Future utilization of net operating loss carryforwards or research and development credit carryforwards may be impaired due to changes in ownership.

Our net operating loss and research and development credit carryforwards may be subject to limitation under Section 382 of the Internal Revenue Code of 1986 (the “IRC”). As a result, our deferred tax assets and related valuation allowance may be reduced for the estimated impact of the net operating loss and research and development credit carryforwards that we estimate may expire unused. Utilization of our remaining net operating loss and research and development credit carryforwards may still be subject to substantial annual limitations due to ownership change limitations provided by the IRC and similar state provisions, including those that may come in conjunction with market trades by our shareholders or future equity financings.

Our ability to hire and retain key employees is uncertain.

The market for effective professionals in the pharmaceutical industry is competitive, and hiring and retaining these professionals is expensive and challenging. If we are unable to hire and retain key employees, we may be unable to effectively execute on our operating plan, and our business could suffer.

Our employees may engage in misconduct, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.

We are exposed to the risk of employee misconduct, which could include intentional failures to comply with regulatory standards and requirements, such as FDA regulations, federal and state healthcare fraud and abuse laws and regulations, or similar laws and regulations established and enforced by comparable foreign regulatory authorities. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commissions, customer incentive programs and other business arrangements. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in protecting us from governmental actions or lawsuits. If any such actions are instituted against us, and we are not successful in defending ourselves, those actions, including the imposition of significant fines or other sanctions, could have a material adverse effect on our business and results of operations.

Failure to obtain regulatory approval in international jurisdictions would prevent our products, our product candidates or any other products the Company or its current or future out-licensees may develop from being marketed abroad.

In the event the Company or its current or future out-licensees pursue the right to market and sell our products, our product candidates or any other products we may develop in jurisdictions other than the U.S. or the European Union, the Company or its current or future out-licensees would be required to obtain separate marketing approvals and comply with numerous and varying regulatory requirements in each country or jurisdiction. The approval procedures vary among countries and may involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA or European Commission (“EC”) approval. The regulatory approval process outside the U.S. generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the U.S., it is required that the product be approved for reimbursement before the product can be approved for sale in that country or jurisdiction. In the event the Company or its current or future out-licensees choose to pursue them, the Company or its current or future out-licensees may not obtain approvals from regulatory authorities in such countries on a timely basis, if at all. Approval by the FDA or EC does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the U.S. does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. If the Company or its current or future out-licensees are unable in the future to obtain approval of a product or product candidate by regulatory authorities other countries or jurisdictions, the commercial prospects of that product or product candidate may be significantly diminished and our business could suffer.

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We may not be successful in our efforts to out-license our product candidates.

Although a substantial amount of our effort will focus on the commercialization of GIAPREZA and XERAVA, we also may seek to out-license our product candidates. We cannot assure you that our efforts to out-license our product candidates will be successful.

RISKS RELATED TO INTELLECTUAL PROPERTY

GIAPREZA’s and XERAVA’s market exclusivity periods will depend on the validity and enforceability of issued and pending patents covering GIAPREZA and XERAVA.

We depend on patents and other intellectual property rights to prevent others from improperly benefiting from our commercial products, GIAPREZA and XERAVA, and products or inventions that we develop or acquire. For details about our intellectual property portfolio protecting GIAPREZA and XERAVA, see the section titled “Business—Intellectual Property.”

We plan to file additional patent applications that, if issued, would provide further protection for GIAPREZA and XERAVA. Although we believe the bases for these patents and patent applications are sound, they are untested, and there is no assurance that they will not be successfully challenged. There can be no assurance that any patent previously issued will protect GIAPREZA or XERAVA from generic competition or that any patent application will result in an issued patent that will protect GIAPREZA or XERAVA from generic competition. Furthermore, there can be no assurance that GIAPREZA or XERAVA will not be held to infringe valid patents held by others. If our owned and in-licensed intellectual property do not protect GIAPREZA or XERAVA from generic competition, GIAPREZA or XERAVA sales will decline, and our business will suffer. If either GIAPREZA or XERAVA is held to infringe valid patents held by others, we could be subject to liability, and our business could suffer.

If we fail to comply with our obligations under our in-license agreements, we may lose rights to critical patents that are important to the commercialization and net sales potential of GIAPREZA and XERAVA.

We have licensed patent rights covering GIAPREZA from George Washington University (“GW”) and licensed patent rights covering XERAVA from Harvard University (“Harvard”) and Paratek Pharmaceuticals, Inc. (“Paratek”). If, for any reason, our in-license agreements with GW, Harvard or Paratek are terminated or we otherwise lose those rights, it would materially and adversely affect our business. Our in-license agreements with GW, Harvard and Paratek impose, and any future collaboration agreements or license agreements we enter into are likely to impose, various development, commercialization, commercial supply, milestone, royalty, diligence, sublicensing, insurance, patent prosecution and enforcement or other obligations on us. Failure to fulfill these obligations would pose a material risk to our patent protection and commercial prospects for GIAPREZA and XERAVA, and our business would suffer.

If our products or our product candidates infringe the rights of others, we could be subject to expensive litigation, become liable for substantial damages, be required to obtain licenses from others or be prohibited from selling our products or product candidates altogether.

Our competitors or others may have patent rights that they choose to assert against us or our licensors, licensees, suppliers, customers or potential marketing partners. Moreover, we may not know about patents or patent applications that our products or product candidates would infringe. Because patent applications do not publish for at least 18 months, if at all, and can take many years to issue, there may be currently pending applications unknown to us that may later result in issued patents that our products or product candidates would infringe. In addition, if third parties file patent applications or obtain patents claiming inventions also claimed by us or our licensors in issued patents or pending applications, we may have to participate in interference proceedings in the U.S. Patent and Trademark Office (“USPTO”) to determine priority of invention. If third parties file oppositions in foreign countries, we may

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also have to participate in opposition proceedings in foreign tribunals to defend the patentability of claims in our foreign patent applications.

If a third party claims that we infringe its proprietary rights, any of the following may occur:

 

we may become involved in time-consuming and expensive litigation, even if the claim is without merit;

 

we may become liable for substantial damages for past infringement if a court decides that we have infringed a competitor’s patent;

 

 

a court may prohibit us from selling or licensing our products without a license from the patent holder, which may not be available on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross-licenses to our patents; or

 

we may have to redesign our products or product candidates so that they do not infringe patent rights of others, which may not be possible or commercially feasible and may require new regulatory approvals.

Any of these events would have a material adverse effect on our business, results of operations and financial condition.

Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

Changes in either the patent laws or interpretation of the patent laws in the U.S. or other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the U.S. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we or our licensors were the first to make the inventions claimed in our owned and licensed patents or pending applications, or that we or our licensor were the first to file for patent protection of such inventions.

Assuming the other requirements for patentability are met, in the U.S., prior to March 15, 2013, the first to make the claimed invention is entitled to the patent, while, outside the U.S., the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act (“Leahy-Smith Act”), enacted on September 16, 2011, the U.S. has moved to a first-to-file system. The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, results of operations and financial condition.

Among some of the other changes introduced by the Leahy-Smith Act are changes that limit where a patentee may file a patent infringement suit and provide new opportunities for third parties to challenge issued patents in the USPTO. We may be subject to the risk of third-party prior art submissions on pending applications or become a party to opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patents for our products or product candidates. There is a lower standard of evidence necessary to invalidate a patent claim in a USPTO proceeding relative to the standard in U.S. federal courts. This could lead third parties to challenge and successfully invalidate our patents that would not otherwise be invalidated if challenged through the court system.


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RISKS RELATED TO OUR INDUSTRY

We are subject to various federal, state and foreign laws and regulations governing the health care industry that could result in substantial penalties for noncompliance.

We are subject to various federal, state and foreign laws and regulations governing the health care industry that could result in substantial penalties for noncompliance. These laws and regulations may impact our ability to operate, including our sales and marketing efforts. In addition, we may be subject to patient privacy regulation by federal, state and foreign governments that govern jurisdictions in which we conduct our business. The laws and regulations that may affect our ability to operate include:

 

The federal Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, an item or service reimbursable under a federal health care program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value, including for example gifts, cash payments, donations, the furnishing of supplies or equipment, waivers of payment, ownership interests, and providing any item, service or compensation for something other than fair market value.

 

Federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, which prohibits anyone from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services that are false or fraudulent. Although we may not submit claims directly to payors, manufacturers can be held liable under these laws in a variety of ways. These include: providing inaccurate billing or coding information to customers; improperly promoting a product’s off-label use; violating the federal Anti-Kickback Statute; or misreporting pricing information to government programs.

 

Federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, which prohibits anyone from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services that are false or fraudulent. Although we may not submit claims directly to payors, manufacturers can be held liable under these laws in a variety of ways. These include: providing inaccurate billing or coding information to customers; improperly promoting a product’s off-label use; violating the federal Anti-Kickback Statute; or misreporting pricing information to government programs.

 

Provisions of the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created new federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any health care benefit program or making false statements in connection with the delivery of or payment for health care benefits, items or services.

 

The federal Physician Payment Sunshine Act requirements, under the Patient Protection and Affordable Care Act (“PPACA”), which require manufacturers of certain drugs and biologics to track and report to U.S. Centers for Medicare & Medicaid Services (“CMS”) payments and other transfers of value they make to U.S. physicians and teaching hospitals as well as physician ownership and investment interests in the manufacturer.

 

Various federal, state and foreign data privacy and security laws and regulations. These include provisions of HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations (“HITECH”), which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information in the U.S. and the General Data Protection Regulation (“GDPR”) in the European Union that became effective in May 2018. We may not be directly subject to certain of these laws and regulations, such as privacy and security requirements under HIPAA; however, we may be subject to criminal penalties for knowingly, aiding and embedding these violations.

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Section 1927 of the Social Security Act, which requires that manufacturers of drugs and biological products covered by Medicaid report pricing information to CMS on a monthly and quarterly basis, including the best price available to any customer of the manufacturer, with certain exceptions for government programs, and pay prescription rebates to state Medicaid programs based on a statutory formula derived from reported pricing information.

 

State and/or foreign law equivalents of each of the above federal laws, such as the recently effective California Consumer Privacy Act, many of which differ from each other in significant ways and may not have the same effect, which complicates our compliance efforts.

If we are found to be in violation of any of the laws or regulations described above or any other laws or regulations that apply to us, we may be subject to substantial penalties, including civil and criminal penalties, damages, fines and possible exclusion from participation in Medicare, Medicaid and other federal health care programs. If we are subjected to substantial penalties, our business will suffer, and we may be forced to curtail or cease our operations.

Drugs approved by the FDA, EC and/or other regulatory agencies are subject to ongoing regulation.

Any products manufactured or distributed by us pursuant to FDA, EC and/or other regulatory agency approvals may be subject to continuing regulation by such agencies, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA, EC and/or other regulatory agencies and may be subject to periodic unannounced inspections by such agencies for compliance with cGMPs, which impose certain procedural and documentation requirements on us and our third-party manufacturers. Even after regulatory approval is obtained, under certain circumstances, such as later discovery of previously unknown safety risks, the FDA, EC and/or other regulatory agencies can withdraw approval, recall the product or subject the drug to additional restrictions. In addition, governments outside of the U.S. tend to impose strict price controls, which may adversely effect our revenues or our royalty payments received from license agreements.

Drug development involves a lengthy and expensive process with an uncertain outcome.

Drug development involves a lengthy and expensive process with an uncertain outcome. Failure may occur at any time during drug development. The results of nonclinical studies and early clinical studies may not be predictive of the results of later-stage clinical studies. For example, the safety or efficacy results of clinical studies do not ensure that later clinical studies will demonstrate similar results. Even if clinical studies demonstrate the safety and efficacy of the product candidate, there is no assurance that such product candidate will receive regulatory approval.

Business interruptions resulting from geopolitical actions, natural disasters, public health crises or other catastrophic events could have an adverse impact on our business.

Business interruptions resulting from geopolitical actions, such as war and terrorism, natural disasters, public health crises, such as a pandemic, or other catastrophic events could have an adverse impact on our business. For example, if one of these events were to adversely affect one of our contract manufacturers, our supply of GIAPREZA and XERAVA could be interrupted. Furthermore, in the case of a pandemic, the ability of our critical care specialists to access hospitals and call on physicians may be curtailed, which may adversely affect product sales.

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The ongoing COVID-19 pandemic may disrupt our operations and affect our ability to sell GIAPREZA and XERAVA.

We are unable to accurately predict the full impact that the ongoing Coronavirus Disease 2019 (“COVID‑19”) pandemic will have on our results from operations, financial condition and our ability to sell GIAPREZA and XERAVA due to numerous factors that are not within our control, including its duration and severity of the outbreak. Stay-at-home orders, business closures, travel restrictions, supply chain disruptions and employee illness or quarantines could result in disruptions to our operations, which could adversely impact our results from operations and financial condition. In addition, the COVID-19 pandemic has resulted in ongoing volatility in financial markets. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets relating to the COVID-19 pandemic, our operations and financial condition could be adversely impacted.

RISKS RELATED TO OWNERSHIP OF SHARES OF OUR COMMON STOCK

The price per share of our common stock may fluctuate significantly, and you may lose all or part of your investment.

The price per share of our common stock may fluctuate significantly, and you may lose all or part of your investment. These fluctuations could be based on various factors, including factors described elsewhere in this Annual Report on Form 10-K and below:

changes in analyst estimates, ratings and price targets;

negative press reports or other negative publicity, whether or not true, about our business;

developments concerning the pharmaceutical and biotechnology industry in general;

market sentiment towards pharmaceutical and biotechnology stocks;

developments concerning the overall economy; and

market sentiment toward equity securities.

Any of these factors may result in large and sudden changes in the volume and trading price of shares of our common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted securities class action litigation against that company. If we were involved in a class action suit, it could divert the attention of management, result in negative press reports and, if adversely determined, have a material adverse effect on our results of operations and financial condition.

We have never paid a dividend on shares of our common stock, and you should rely on price appreciation of shares of our common stock for return on your investment.

We have never paid a dividend on shares of our common stock. Even if we decide to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations, financial condition, contractual restrictions and other factors. You should not rely on dividend income from shares of our common stock and should rely on price appreciation of shares of our common stock for a return, if any, on your investment.

Conversion of our convertible preferred stock would result in substantial dilution for our existing shareholders of common stock.

As of December 31, 2020, there were approximately 27.4 million shares of common stock outstanding. We may be required to issue up to approximately 6.7 million additional shares of common stock upon conversion of existing convertible preferred stock. The issuance of these additional shares would represent approximately 20% dilution to our existing shareholders of common stock.

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If we need to obtain additional financing in the future, such financing could result in dilution to your investment, adversely affect the price per share of our common stock and/or create future operating and financial restrictions.

As of December 31, 2020, we had cash and cash equivalents of $21.2 million. GIAPREZA and XERAVA are our approved products and our only source of product revenue. The amount and timing of future funding requirements, if any, will depend on many factors, including the success of our commercialization efforts for GIAPREZA and XERAVA and our ability to control expenses. If necessary, we will raise additional capital through equity or debt financings. We can provide no assurance that additional financing will be available to us on favorable terms, or at all. If we issue additional equity securities or securities convertible into equity securities, you will suffer dilution to your investment, and such issuance may adversely affect the price per share of our common stock. Any new debt financing we enter into may involve covenants that restrict our operations, which may include limitations on borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens or pay dividends.

Our directors, executive officers and principal shareholders have substantial control over the Company, which could limit your ability to influence the outcome of key transactions, including a change of control.

As of February 25, 2021, our current directors, officers and shareholders who own greater than 5% of our outstanding shares of common stock, together with their affiliates, beneficially own, in the aggregate, approximately 55% of our outstanding shares of common stock. As a result, these current directors, officers and shareholders, if they act, will be able to influence or control matters requiring approval by our shareholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. In addition, our current directors, officers and shareholders, acting together, would have the ability to control the management and affairs of the Company. They may also have interests that differ from yours and may vote in a way with which you disagree and that may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of the Company, could deprive our shareholders of an opportunity to receive a premium for their shares of common stock as part of a sale of the Company and could affect the market price of shares of our common stock.

35


GENERAL RISK FACTORS

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

Disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

Our business and operations may be materially adversely affected in the event of computer system failures or security breaches.

 

Despite the implementation of security measures, our internal computer systems, and those of other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism, war and telecommunication and electrical failures. If such an event were to occur and interrupt our operations, it could result in a material disruption of our development programs. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, loss of trade secrets or inappropriate disclosure of confidential or proprietary information, including protected health information or personal data of employees or former employees, access to our customer or clinical data or disruption of the manufacturing process, we could incur liability and the further development of our products or product candidates could be delayed. We may also be vulnerable to cyber-attacks or other malfeasance by hackers, employees and others. This type of breach of our cybersecurity may compromise our confidential information or our financial information and adversely affect our business or result in legal proceedings.


36


Item 1B.  Unresolved Staff Comments

Not applicable.

Item 2.  Properties

Effective April 15, 2021, our principal executive offices will be located at 201 Jones Road, Suite 400, Waltham, Massachusetts 02451. We also maintain offices at 4747 Executive Drive, Suite 240, San Diego, California 92121. We lease approximately 7,388 square feet of office space in Waltham and sublease approximately 2,368 square feet of office space in San Diego.

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

 

Item 4.  Mine Safety Disclosures

 

Not applicable.


37


PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

Market Information

Shares of our common stock are traded on the Nasdaq Capital Market under the symbol “LJPC.”

Holders of Record

As of February 8, 2021, we had 4 holders of record. Certain shares of common stock are held in “street” name, and, accordingly, the number of beneficial owners of such shares of common stock is not known or included in the foregoing number. This number of holders of record also does not include shareholders whose shares may be held in trust by other entities.

Dividend Policy

 

We have never paid dividends on shares of our common stock, and we do not have any plans to pay dividends in the foreseeable future. Any determination to pay dividends to holders of shares of our common stock will be at the discretion of our board of directors (“Board”) and will depend on many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in the agreements governing any indebtedness we may enter into and other factors that our Board deems relevant.

Item 6. Selected Financial Data.

Not required.

 

 

 

38


Item 7. 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 together with our audited financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” set forth in this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Business Overview

La Jolla Pharmaceutical Company is dedicated to the development and commercialization of innovative therapies that improve outcomes in patients suffering from life-threatening diseases. GIAPREZA™ (angiotensin II) injection is approved by the U.S. Food and Drug Administration (“FDA”) as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. XERAVA™ (eravacycline) for injection is approved by the FDA as a tetracycline class antibacterial indicated for the treatment of complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and older.

On July 28, 2020, La Jolla completed its acquisition of Tetraphase Pharmaceuticals, Inc. (“Tetraphase”), a biopharmaceutical company focused on commercializing XERAVA, for $43 million in upfront cash plus potential future cash payments of up to $16 million. Financial results for the period ending December 31, 2020 include Tetraphase’s financial results subsequent to the acquisition closing date of July 28, 2020.

On January 12, 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase, entered into an exclusive licensing agreement (“PAION License”) with PAION AG and its wholly owned subsidiary (collectively, “PAION”) to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland whereby La Jolla is entitled to receive an upfront cash payment of $22.5 million plus potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments.

As of December 31, 2020, La Jolla had $21.2 million of cash and cash equivalents. On a pro forma basis, adjusting for $18.9 million of upfront net proceeds from the PAION License, net of the amounts due under the George Washington University and Harvard University license agreements, La Jolla had cash and cash equivalents of $40.1 million.

 

For the three and twelve months ended December 31, 2020, GIAPREZA U.S. net sales were $8.7 million and $29.3 million, respectively, up 19% and 27%, respectively, from the same periods in 2019. Subsequent to July 28, 2020 and through December 31, 2020, XERAVA U.S. net sales were $4.2 million. For the three and twelve months ended December 31, 2020, including the period prior to the acquisition of Tetraphase, XERAVA U.S. net sales were $2.3 million and $8.2 million, respectively, up 53% and 128%, respectively, from the same periods in 2019.

 

39


Results of Operations

The following table summarizes our results of operations for each of the periods below (in thousands):

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

Change

 

Net product sales

 

$

33,419

 

 

$

23,054

 

 

$

10,365

 

Cost of product sales

 

 

7,819

 

 

 

2,392

 

 

 

5,427

 

Selling, general and administrative expense

 

 

38,428

 

 

 

45,134

 

 

 

(6,706

)

Research and development expense

 

 

23,010

 

 

 

85,329

 

 

 

(62,319

)

Other income (expense), net

 

 

(3,583

)

 

 

(6,707

)

 

 

3,124

 

Net loss

 

$

(39,421

)

 

$

(116,508

)

 

$

77,087

 

 

Financial results for the period ending December 31, 2020 include Tetraphase’s financial results subsequent to the acquisition closing date of July 28, 2020. Net loss for the year ended December 31, 2020 includes $2.5 million of purchase price accounting adjustments and $0.9 million of one-time acquisition-related expenses.

 

Net Product Sales

 

Net product sales consist solely of revenue recognized from sales of GIAPREZA and XERAVA to hospitals and other healthcare organizations in the U.S. through a network of specialty and wholesale distributors. These specialty and wholesale distributors are considered our customers for accounting purposes. GIAPREZA U.S. net sales were $29.3 million for the year ended December 31, 2020, compared to $23.1 million for the same period in 2019. Subsequent to July 28, 2020 and through December 31, 2020, XERAVA U.S. net sales were $4.2 million. XERAVA U.S. net sales were $8.2 million for the year ended December 31, 2020, including the period prior to the acquisition of Tetraphase, compared to $3.6 million for the same period in 2019.

 

Cost of Product Sales

 

Cost of product sales consists primarily of expense associated with: (i) royalties payable to George Washington University, Harvard University and Paratek Pharmaceuticals, Inc.; (ii) the inventory fair value step-up adjustment recorded in connection with the acquisition of Tetraphase; (iii) manufacturing; (iv) regulatory fees; and (v) shipping and distribution. Cost of product sales was $7.8 million for the year ended December 31, 2020, compared to $2.4 million for the same period in 2019. Subsequent to July 28, 2020 and through December 31, 2020, cost of product sales includes $2.5 million of the inventory fair value step-up adjustment recorded in connection with the acquisition of Tetraphase. For the year ended December 31, 2020, cost of product sales also included charges resulting from the reserve of short-dated GIAPREZA inventory of $0.8 million.

40


Selling, General and Administrative Expense

 

Selling, general and administrative expense consists of non-personnel and personnel expenses. Non-personnel-related expense includes expense related to: (i) professional fees for legal, patent, consulting, accounting and audit services; (ii) sales and marketing costs such as speaker programs and medical communications; (iii) facilities and information technology; and (iv) insurance. Personnel-related expense includes expense related to salaries, benefits and share-based compensation for personnel engaged in sales, finance and administrative functions. We expect selling, general and administrative expense to decrease in the near term.

 

The following table summarizes these expenses for each of the periods below (in thousands):

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

Change

 

Non-personnel expense:

 

 

 

 

 

 

 

 

 

 

 

 

Professional fees

 

$

5,812

 

 

$

4,398

 

 

$

1,414

 

Sales and marketing

 

 

3,918

 

 

 

7,194

 

 

 

(3,276

)

Facility

 

 

2,536

 

 

 

1,519

 

 

 

1,017

 

Other

 

 

2,861

 

 

 

2,805

 

 

 

56

 

Total non-personnel expense

 

$

15,127

 

 

$

15,916

 

 

$

(789

)

Personnel expense:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, bonuses and benefits

 

 

16,298

 

 

 

19,747

 

 

 

(3,449

)

One-time charges for reductions in headcount

 

 

4,195

 

 

 

599

 

 

 

3,596

 

Share-based compensation expense

 

 

2,808

 

 

 

8,872

 

 

 

(6,064

)

Total personnel expense

 

$

23,301

 

 

$

29,218

 

 

$

(5,917

)

Total selling, general and administrative expense

 

$

38,428

 

 

$

45,134

 

 

$

(6,706

)

 

During the year ended December 31, 2020, total selling, general and administrative non-personnel expense decreased primarily as a result of decreases in sales and marketing-related expenses primarily due to reduced travel, speaker programs and other marketing activities; partially offset by: (i) increases in professional fee-related expenses, including $0.9 million of one-time acquisition-related expenses; and (ii) increases in facility-related and other expenses primarily as a result of an increase of overhead expenses allocated to selling, general and administrative activities.

 

During the year ended December 31, 2020, total selling, general and administrative personnel expense decreased as a result of decreases in salaries, bonuses and benefits and share-based compensation expense as a result of reduced headcount in 2020; partially offset by increases of one-time charges in 2020 resulting from: (i) a reduction of headcount from a Company-wide realignment in May 2020; and (ii) a reduction in headcount as a result of combining La Jolla and Tetraphase personnel in July 2020.

41


Research and Development Expense

 

Research and development expense consists of non-personnel and personnel expenses. Non-personnel-related expense includes expense related to: (i) manufacturing development; (ii) contract research organizations conducting clinical studies; and (iii) facilities and information technology. Personnel-related expense includes expense related to salaries, benefits and share-based compensation for personnel engaged in research and development functions. We expect our research and development expense to significantly decrease in the near term.

 

The following table summarizes these expenses for each of the periods below (in thousands):

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

Change

 

Non-personnel expense:

 

 

 

 

 

 

 

 

 

 

 

 

GIAPREZA

 

$

4,036

 

 

$

6,007

 

 

$

(1,971

)

LJPC-401

 

 

1,683

 

 

 

17,603

 

 

 

(15,920

)

XERAVA

 

 

866

 

 

 

-

 

 

 

866

 

LJPC-0118

 

 

926

 

 

 

1,746

 

 

 

(820

)

Other programs

 

 

-

 

 

 

6,731

 

 

 

(6,731

)

Facility

 

 

2,930

 

 

 

7,318

 

 

 

(4,388

)

Other

 

 

556

 

 

 

3,991

 

 

 

(3,435

)

Total non-personnel expense

 

$

10,997

 

 

$

43,396

 

 

$

(32,399

)

Personnel expense:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, bonuses and benefits

 

 

6,186

 

 

 

21,839

 

 

 

(15,653

)

One-time charges for reductions in headcount

 

 

2,428

 

 

 

5,233

 

 

 

(2,805

)

Share-based compensation expense

 

 

3,399

 

 

 

14,861

 

 

 

(11,462

)

Total personnel expense

 

$

12,013

 

 

$

41,933

 

 

$

(29,920

)

Total research and development expense

 

$

23,010

 

 

$

85,329

 

 

$

(62,319

)

 

During the year ended December 31, 2020, total research and development non-personnel expense decreased primarily as a result of the following: (i) decreases in program-related expenses as we de-prioritized our product candidates and focused on the commercialization of GIAPREZA and XERAVA; and (ii) decreases in facility-related and other expenses primarily as a result of the termination of our San Diego Lease effective August 31, 2020 (see Note 6 to the consolidated financial statements included in Item 15 of this Annual Report on Form 10-K) and a reduction of overhead expenses allocated to research and development activities.

 

During the year ended December 31, 2020, total research and development personnel expense, including share-based compensation expense, decreased as a result of reduced headcount in 2020.

 

Other Income (Expense), Net

Other income (expense), net consists of the following: (i) interest expense accrued for our deferred royalty obligation; (ii) income from distributions received in connection with our non-voting profits interest in a related party; (iii) gains and losses associated with the disposal of certain property and equipment; (iv) gains and losses associated with the termination of leases; (v) gains from changes in the fair value of contingent value rights; and (vi) interest income generated from cash held in savings accounts.

42


 

During the year ended December 31, 2020, other expense, net decreased to $3.6 million from $6.7 million for the same period in 2019, a decrease of $3.1 million. This decrease was primarily due to a $4.3 million increase in the receipt of distributions in connection with the Company’s non-voting profits interest in a related party, a $0.8 million gain from the change in fair value of contingent value rights and a $0.7 million decrease in interest expense for our deferred royalty obligation, partially offset by a $1.9 million decrease in interest income generated from cash held in savings accounts.

 

Liquidity and Capital Resources

 

As of December 31, 2020 and December 31, 2019, we had cash and cash equivalents of $21.2 million and $87.8 million, respectively. On a pro forma basis, adjusting for $18.9 million of upfront net proceeds from the PAION License, net of the amounts due under the George Washington University and Harvard University license agreements, the Company had cash and cash equivalents of $40.1 million. Based on our current operating plans and projections, we believe that our existing cash and cash equivalents will be sufficient to fund operations for at least one year from the date this Annual Report on Form 10-K is filed with the SEC.

 

Net cash used for operating activities for the three and twelve months ended December 31, 2020 was $7.3 million and $37.6 million, respectively, down 57% and 56%, respectively, from the same periods in 2019. Net cash used for operating activities for the three and twelve months ended December 31, 2020, excluding cash expenditures related to reductions in headcount and transaction costs associated with the Tetraphase acquisition, was $5.7 million and $27.2 million, respectively, down 65% and 67%, respectively, from the same periods in 2019. Cash expenditures related to reductions in headcount were $1.6 million and $9.5 million for the three and twelve months ended December 31, 2020, respectively, and $0.9 million and $3.2 million, respectively, for the same periods in 2019. Cash expenditures related to transaction costs associated with the Tetraphase acquisition were zero and $0.9 million for the three and twelve months ended December 31, 2020, respectively.

 

Cash used for investing activities was $30.9 million and $0.7 million for the years ended December 31, 2020 and 2019, respectively. The increase in cash used for investing activities resulted primarily from the acquisition of Tetraphase, net of cash, cash equivalents and restricted cash acquired, partially offset by proceeds from the sale of property and equipment.

Cash provided by financing activities was $1.1 million and $0.9 million for the year ended December 31, 2020 and 2019, respectively. The increase in cash provided by financing activities was primarily the result of net proceeds from issuance of common stock under employee stock plans.

 

Since January 2012, when the Company was effectively restarted, through December 31, 2020, our cash used in operating activities was $463.5 million. As of December 31, 2020, we had an accumulated deficit of $1,076.8 million and have financed our operations through public and private offerings of securities, a royalty financing, revenues from net product sales, interest income on invested cash balances and other income.

43


Contractual Obligations

HealthCare Royalty Partners Royalty Agreement

In May 2018, we closed a $125.0 million royalty financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the Royalty Agreement, we received $125.0 million in exchange for tiered royalty payments on worldwide net sales of GIAPREZA. HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA beginning April 1, 2018. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. Through December 31, 2021, the royalty rate will be a maximum of 10%. Starting January 1, 2022, the maximum royalty rate may increase by 4% if an agreed-upon, cumulative net product sales threshold has not been met, and, starting January 1, 2024, the maximum royalty rate may increase by an additional 4% if a different agreed-upon, cumulative net product sales threshold has not been met. The Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $225.0 million. The Royalty Agreement expires upon the first to occur of January 1, 2031 or when the maximum aggregate royalty payments have been made. The Royalty Agreement was entered into by our wholly owned subsidiary, La Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against La Jolla Pharmaceutical Company or any assets other than GIAPREZA.

In-license Agreements

George Washington University License

In December 2014, the Company entered into a patent license agreement with George Washington University (“GW”), which was subsequently amended and restated (the “GW License”) and assigned to La Jolla Pharma, LLC. Pursuant to the GW License, GW exclusively licensed to the Company certain intellectual property rights relating to GIAPREZA, including the exclusive rights to certain issued patents and patent applications covering GIAPREZA. Under the GW License, La Jolla Pharma, LLC is obligated to use commercially reasonable efforts to develop, commercialize, market and sell GIAPREZA. The Company has paid a one-time license initiation fee, annual maintenance fees, an amendment fee, additional payments following the achievement of certain development and regulatory milestones and royalties. As a result of the European Commission’s approval of GIAPREZA in August 2019, the Company made a milestone payment to GW in the amount of $0.5 million in the first quarter of 2020. The Company is obligated to pay a 6% royalty on net sales of GIAPREZA and 15% on payments from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering GIAPREZA.

Harvard University License

In August 2006, Tetraphase entered into a license agreement with Harvard University (“Harvard”), which was subsequently amended and restated (the “Harvard License”). Pursuant to the Harvard License, Harvard exclusively licensed to the Company certain intellectual property rights relating to tetracycline-based products, including XERAVA, including the exclusive rights to certain issued patents and patent applications covering such products. Under the Harvard License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell tetracycline-based products, including XERAVA. For each product covered by the Harvard License, the Company is obligated to make certain payments for the following: (i) up to approximately $15.1 million upon the achievement of certain clinical development and regulatory milestones; (ii) a 5% royalty on direct U.S. net sales of XERAVA; (iii) a single-digit tiered royalty on direct ex-U.S. net sales of XERAVA, starting at a minimum royalty rate of 4.5%, with step-ups to a maximum royalty of 7.5% based on the achievement of annual net product sales thresholds; and (iv) 20% on payments received from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering tetracycline-based products, including XERAVA.

44


Paratek Pharmaceuticals, Inc. License

In March 2019, Tetraphase entered into a license agreement with Paratek Pharmaceuticals, Inc. (“Paratek”), which was subsequently amended and restated (the “Paratek License”). Pursuant to the Paratek License, Paratek non-exclusively licensed to the Company certain intellectual property rights relating to XERAVA, including non-exclusive rights to certain issued patents and patent applications covering XERAVA. The Company is obligated pay Paratek a 2.25% royalty based on direct U.S. net sales of XERAVA. The Company’s obligation to pay royalties with respect to the licensed product is retroactive to the date of the first commercial sale of XERAVA and shall continue until there are no longer any valid claims of the Paratek patents, which will expire in October 2023.

Out-license Agreements

PAION AG License

 

On January 12, 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase, entered into an exclusive licensing agreement with PAION AG and its wholly owned subsidiary (collectively, “PAION”) (the “PAION License”). Pursuant to the PAION License, La Jolla granted PAION an exclusive license to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland (collectively, the “PAION Territory”). La Jolla is entitled to receive an upfront cash payment of $22.5 million plus potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments. In addition, royalties payable under the PAION License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction. Pursuant to the PAION License, PAION will be solely responsible for the future development and commercialization of GIAPREZA and XERAVA in the PAION Territory. PAION is required to use commercially reasonable efforts to commercialize GIAPREZA and XERAVA in the PAION Territory. The Company agreed to use commercially reasonable efforts to negotiate and enter into a separate commercial supply agreement to manufacture drug product for commercial supply. The Company has not yet entered into a commercial supply agreement with PAION, which would set the quantity and timing of commercial supply. The Company has not received any payments from PAION related to either royalties or commercial milestones.

Everest Medicines Limited License

 

In February 2018, Tetraphase entered into a license agreement with Everest Medicines Limited (“Everest”), which was subsequently amended and restated (the “Everest License”). Pursuant to the Everest License, Tetraphase granted Everest an exclusive license to develop and commercialize XERAVA for the treatment of cIAI and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Everest Territory”). The Company is eligible to receive up to an aggregate of $11.0 million in future clinical development and regulatory milestone payments and up to an aggregate of $20.0 million in sales milestone payments. The Company is also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Everest Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Everest Territory until the latest to occur of: (1) the last-to-expire of specified patent rights in such jurisdiction in the Everest Territory; (2) expiration of marketing or regulatory exclusivity in such jurisdiction in the Everest Territory; or (3) 10 years after the first commercial sale of a product in such jurisdiction in the Everest Territory. In addition, royalties payable under the Everest License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction, with any such reductions capped at certain percentages of the amounts otherwise payable during the applicable royalty payment period. Pursuant to the Everest License, Everest will be solely responsible for the development and commercialization of licensed products in the Everest Territory. The Company agreed to use commercially reasonable efforts to manufacture drug product for clinical development, which will be paid by Everest at the cost to manufacture, as well as manufacture drug product for commercial supply, which will be paid by Everest at cost plus a reasonable margin. The Company has not yet entered into a commercial supply agreement with Everest, which would set the

45


quantity and timing of commercial supply. Subsequent to July 28, 2020 and through December 31, 2020, the Company has not received any payments from Everest related to either royalties or clinical development and regulatory milestones.

 

Off−Balance Sheet Arrangements

We have no off−balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in our financial condition, expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these audited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in the notes to our consolidated financial statements included in Item 15 of this Annual Report on Form 10-K, we believe that the following accounting policies and estimates are most critical to understanding and evaluating our reported financial results.

 

Revenue Recognition

The Company has adopted Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 606—Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company recognizes revenue when its customers obtain control of the Company’s product, which typically occurs on delivery. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods. Specialty and wholesale distributors are considered our customers for accounting purposes. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company performs the following 5 steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies the relevant performance obligations. There have been no contract assets or liabilities recorded to date relating to product sales.

Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of chargebacks, discounts, returns, Medicaid rebates and administrative fees. Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted. These items include:

 

Chargebacks—Chargebacks are discounts the Company provides to distributors in the event that the sales prices to end users are below the distributors’ acquisition price. This may occur due to a direct contract with a health system, a group purchasing organization (“GPO”) agreement or a sale to a government facility. Chargebacks are estimated based on known chargeback rates and recorded as a reduction of revenue on delivery to customers.

46


 

Discounts—The Company offers customers various forms of incentives and consideration, including prompt-pay and other discounts. The Company estimates discounts primarily based on contractual terms. These discounts are recorded as a reduction of revenue on delivery to customers.

 

Returns—The Company offers customers a limited right of return, generally for damaged or expired product. The Company estimates returns based on an internal analysis, which includes actual experience. The estimates for returns are recorded as a reduction of revenue on delivery to customers.

 

Medicaid Rebates—We participate in Medicaid rebate programs, which provide assistance to certain low-income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we pay a rebate to each participating state, generally within three months after the quarter in which product was sold. The estimates for rebates are recorded as a reduction of revenue on delivery to the Company’s customers.

 

Administrative Fees—The Company pays administrative fees to GPOs for services and access to data. Additionally, the Company pays an Industrial Funding Fee as part of the U.S. General Services Administration’s Federal Supply Schedules program. These fees are based on contracted terms and are paid after the quarter in which the product was purchased by the applicable GPO or government agency. Administrative fees are recorded as a reduction of revenue on delivery to customers.

 

The Company will continue to assess its estimates of variable consideration as it accumulates additional historical data and will adjust these estimates accordingly.

 

Business Combinations

 

The Company accounts for business combinations using the acquisition method pursuant to FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in La Jolla's financial results beginning on the respective acquisition dates, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized as part of the Purchase Price at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration liabilities will be included in other income (expense), net in the consolidated statements of operations. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.

 

Intangible Assets

Intangible assets acquired in a business combination are initially recorded at fair value. Intangible assets with a definite useful life are amortized on a straight-line basis over the estimated useful life of the related assets. Intangible assets with an indefinite useful life are not amortized.

 

The Company reviews its intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the asset, including its eventual residual value, is compared to the carrying value to determine whether impairment exists. In the event that such cash flows are not expected to be sufficient to recover the

47


carrying amount of the assets, the assets are written down to their estimated fair values. Fair value is estimated through discounted cash flow models to project cash flows from the asset.

 

Goodwill

 

Goodwill represents the excess of the Purchase Price over the fair value of the net assets acquired as of the acquisition date. Goodwill has an indefinite useful life and is not amortized.

 

The Company reviews its goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the Company may exceed its fair value. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the Company is less than its carrying amount, including goodwill. If that is not the case, the Company has completed its goodwill impairment test and does not recognize an impairment charge. However, if that is the case, the Company performs a quantitative impairment test, and, if the carrying amount of the Company exceeds its fair value, then the Company will recognize an impairment charge for the amount by which its carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill.

 

Accrued Expenses

As part of the process of preparing the financial statements, we are required to estimate accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed by service providers and estimating the level of service performed and the associated cost incurred for services that have not yet been invoiced. We make estimates of accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known at that time. We periodically confirm the accuracy of recorded estimates with the service providers and make adjustments, if necessary.

We base our accrued expenses on our estimates of the services received and efforts expended pursuant to our contractual arrangements. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepayment accordingly. The financial terms of our contractual agreements may be subject to interpretation, and the timing of payment relative to the timing of services rendered may vary.

 

Interest Expense

 

The deferred royalty obligation royalty from our financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners, which was entered into by our wholly owned subsidiary, La Jolla Pharma, LLC, is repaid based on the net sales of GIAPREZA. Interest expense and the amortization of issuance costs related to the deferred royalty obligation are recognized over the expected repayment term using the effective interest method. The assumptions used in determining the expected repayment term of the deferred royalty obligation require us to make estimates that could impact the effective interest rate. Each reporting period, we update our estimate of accrued interest expense under the Royalty Agreement based on actual and forecasted net sales of GIAPREZA. Changes in interest expense resulting from changes in the effective interest rate, if any, are recorded on a prospective basis.

 

Recent Accounting Pronouncements

Recent accounting pronouncements are disclosed in Note 2 to the accompanying audited consolidated financial statements included in Item 15 of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company, as defined by Rule 12b-2 under the Securities and Exchange Act of 1934 and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.

48


 

Item 8. Financial Statements and Supplementary Data

The financial statements required by this item are set forth at the end of this Annual Report on Form 10-K beginning on page F-1 and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures.

Management’s Evaluation of our Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures. Based on that evaluation of our disclosure controls and procedures as of December 31, 2020, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

As of December 31, 2020, our management used the Committee of Sponsoring Organizations of the Treadway Commission Internal Control-Integrated Framework (2013) (“COSO Framework”) to evaluate the effectiveness of internal control over financial reporting.

Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 and has concluded that such internal control over financial reporting was effective.

Item 9B. Other Information.

None.

49


PART III

Item 10. Directors, Executive Officer and Corporate Governance

The information required by this Item is expected to be contained in our Definitive Proxy Statement for the 2021 Annual Meeting of Shareholders (the “2021 Proxy Statement”), which we expect to be filed with the U.S. Securities and Exchange Commission (“SEC”) within 120 days of the end of our fiscal year ended December 31, 2020 and is incorporated herein by reference.

We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Business Conduct and Ethics is posted on our website located at www.ljpc.com in the Corporate Governance section under “Investor Relations.” We intend to disclose future amendments to certain provisions of the Code of Business Conduct and Ethics, and waivers of the Code of Business Conduct and Ethics granted to executive officers and directors, on our website within 4 business days following the date of the amendment or waiver.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference to information in our 2021 Proxy Statement, including under the sections entitled “Executive Compensation,” “Executive Compensation—Director Compensation,” “Executive Compensation—Compensation Committee Interlocks and Insider Participation,” “Executive Compensation—Risk Management and Mitigation” and “Executive Compensation—Compensation Committee Report.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by this Item is incorporated herein by reference to information in our 2021 Proxy Statement, including under the sections entitled “Certain Relationships and Related—Person Transactions,” “Corporate Governance” and “Corporate Governance—Board Committees.”

The information required by this Item is incorporated herein by reference to information in our 2021 Proxy Statement, including under the sections entitled “Certain Relationships and Related—Person Transactions,” “Corporate Governance” and “Corporate Governance—Board Committees.”

Item 14. Principal Accountant Fees and Services

The information required by this Item is incorporated herein by reference to information in our 2021 Proxy Statement, including under the section entitled “Proposal 2: Ratification of Selection of Independent Registered Public Accounting Firm.”

50


PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1) Financial Statements

The response to this portion of Item 15 is set forth under Item 8 hereof.

(a)(2) Financial Statement Schedules

No financial statement schedules are provided because the information called for is not required or is shown in the financial statements or the notes thereto.

(a)(3) Exhibits

51


 

 

 

 

 

Incorporated by Reference

 

 

Exhibit

No.

 

Exhibit

Description

 

 

Form

 

Date

Filed

 

Filed

Herewith

 

 

 

 

 

 

 

 

 

2.1

 

Agreement and Plan of Merger by and among La Jolla, Merger Sub and Tetraphase, dated June 24, 2020

 

8-K

 

6/24/2020

 

 

 

 

 

 

 

 

 

 

 

3.1.2

 

Certificate of Amendment of Articles of Incorporation of La Jolla Pharmaceutical Company

 

8-K

 

1/15/2014

 

 

 

 

 

 

 

 

 

 

 

3.1.3

 

Certificate of Amendment of Articles of Incorporation of La Jolla Pharmaceutical Company

 

8-A12B/A

 

10/17/2014

 

 

 

 

 

 

 

 

 

 

 

3.4.3

 

La Jolla Pharmaceutical Company Amended and Restated Bylaws

 

8-A12B/A

 

10/17/2014

 

 

 

 

 

 

 

 

 

 

 

4.1

 

Certificate of Determination of Series F Convertible Preferred Stock of La Jolla Pharmaceutical Company

 

8-K

 

9/25/2013

 

 

 

 

 

 

 

 

 

 

 

4.1.3

 

Amended and Restated Articles of Incorporation of La Jolla Pharmaceutical Company

 

S-8

 

12/20/2013

 

 

 

 

 

 

 

 

 

 

 

4.2

 

Description of Securities

 

10-K

 

3/2/2020

 

 

 

 

 

 

 

 

 

 

 

10.1+

 

Form of Indemnification Agreement

 

10-K

 

3/2/2020

 

 

 

 

 

 

 

 

 

 

 

10.2+

 

La Jolla Pharmaceutical Company Amended and Restated 2013 Equity Incentive Plan

 

DEF 14A

 

9/18/2019

 

 

 

 

 

 

 

 

 

 

 

10.3

 

The George Washington University Amended and Restated Patent License Agreement†

 

10-K

 

2/22/2018

 

 

 

 

 

 

 

 

 

 

 

10.4

 

Revenue Interest Agreement, dated May 10, 2018, among La Jolla Pharma, LLC and the Entities Managed by HealthCare Royalty Management, LLC

 

8-K

 

5/14/2018

 

 

 

 

 

 

 

 

 

 

 

10.5+

 

Employment Offer Letter by and between La Jolla Pharmaceutical Company and Larry Edwards dated as of July 28, 2020

 

10-Q

 

11/9/2020

 

 

 

 

 

 

 

 

 

 

 

10.6

 

PAION AG Exclusive Licensing Agreement, dated January 12, 2021

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

10.7

 

License Agreement, dated as of August 3, 2006, by and between the Registrant and the President and Fellows of Harvard College, as amended

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

10.8

 

Amendment, dated as of December 5, 2017, by and between the Registrant and the President and Fellows of Harvard College, as amended

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

10.9

 

Master Manufacturing Services Agreement, dated June 14, 2017, by and between the Registrant and Patheon UK Limited

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

10.10

 

License Agreement, dated February 20, 2018, by and between the Registrant and Everest Medicines Limited

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

52


 

10.11

 

Amendment No.1, dated July 29, 2019, to the License Agreement between Everest Medicines Limited and the Registrant

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

10.12

 

Contingent Value Rights Agreement, dated as of July 17, 2020, between La Jolla Pharmaceutical Company and American Stock Transfer & Trust Company, LLC, as Rights Agent

 

8-K

 

7/29/2020

 

 

 

 

 

 

 

 

 

 

 

10.13

 

Sublease by and between Cotiviti, Inc. and La Jolla Pharmaceutical Company

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

21.1

 

Subsidiaries of La Jolla Pharmaceutical Company

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

23.1

 

Consent of Independent Registered Public Accounting Firm Baker Tilly US, LLP

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

24.1

 

Power of Attorney (included on the signature page of this Form 10-K)

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

31.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

31.2

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

32.1

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

32.2

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

+     Indicates a management contract or compensatory plan or arrangement.

 

 

 

 

 

 

†     Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

 

 

 

 

 

 

Item 16. Form 10-K Summary

None.

53


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

LA JOLLA PHARMACEUTICAL COMPANY

 

 

 

 

Date: March 8, 2021

 

By:

/s/ Larry Edwards

 

 

 

Larry Edwards

 

 

 

Director, President and Chief Executive Officer

 


54


POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Larry Edwards and Michael Hearne, and each of them, the true and lawful attorneys-in-fact and agents of the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, to sign in any and all capacities (including, without limitation, the capacities listed below), with respect to this Annual Report on Form 10-K, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the U.S. Securities and Exchange Commission (the “SEC”), and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and anything necessary to be done to enable La Jolla Pharmaceutical Company to comply with the provisions of the Securities Exchange Act of 1934 (the “Exchange Act”) and all the requirements of the SEC, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute, or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Exchange Act, this report has been signed by the following persons in the capacities set forth opposite their names and on the dates indicated below.

 

Name

 

Title

 

Date

 

 

 

 

 

/s/ Larry Edwards

 

Director, President and Chief Executive Officer

 

March 8, 2021

Larry Edwards

 

(principal executive officer)

 

 

 

 

 

 

 

/s/ Michael Hearne

 

Chief Financial Officer

 

March 8, 2021

Michael Hearne

 

(principal financial and accounting officer)

 

 

 

 

 

 

 

/s/ Kevin Tang

 

Chairman

 

March 8, 2021

Kevin Tang

 

 

 

 

 

 

 

 

 

/s/ Craig Johnson

 

Director

 

March 8, 2021

Craig Johnson

 

 

 

 

 

 

 

 

 

/s/ Laura Johnson

 

Director

 

March 8, 2021

Laura Johnson

 

 

 

 

 

 

 

 

 

/s/ David Ramsay

 

Director

 

March 8, 2021

David Ramsay

 

 

 

 

 

 

 

 

 

/s/ Robert Rosen

 

Director

 

March 8, 2021

Robert Rosen

 

 

 

 

 

 

 

55


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets as of December 31, 2020 and 2019

F-5

 

 

Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019

F-6

 

 

Consolidated Statements of Shareholders’ Deficit for the Years Ended December 31, 2020 and 2019

F-7

 

 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

F-8

 

 

Notes to Consolidated Financial Statements

F-9

 

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and the Board of Directors of La Jolla Pharmaceutical Company

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of La Jolla Pharmaceutical Company and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, shareholders’ deficit and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the Company’s Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

REVENUE RECOGNITION—VARIABLE CONSIDERATION

 

Critical Audit Matter Description

 

As described in Note 2 to the consolidated financial statements, the Company’s revenue is recorded at the transaction price, net of estimates for variable consideration consisting primarily of chargebacks, discounts, and returns. Variable consideration is estimated using the expected-value amount method,

F-2


which is the sum of probability-weighted amounts in a range of possible consideration amounts. Actual amounts of consideration ultimately received may differ from estimates. If actual results vary materially from estimates, the Company will adjust these estimates, which will affect net sales of the products and results from operations in the period such estimates are adjusted.

 

We identified the determination of variable consideration as a critical audit matter. Significant judgment is exercised by the Company in estimating variable consideration when determining the amount of revenue to recognize.

 

Given these factors, the related audit effort in evaluating management’s judgments in determining the amount of variable consideration used to determine the transaction price was extensive and required a high degree of auditor judgment.

 

How We Addressed the Matter in Our Audit

 

The primary procedures we performed to address this critical audit matter included:

 

 

Evaluated management’s accounting policies related to the determination of variable consideration in the calculation of transaction price.

 

 

Evaluated the reasonableness of management’s estimate of variable consideration in accordance with their accounting policies based on contractual terms and historical data and variable consideration estimates.

 

 

Tested variable consideration amounts on a sample basis by recalculating recorded amounts based on contractual terms.

 

 

Tested the mathematical accuracy of management’s calculations of net revenue and the associated timing of net revenue recognized in the financial statements.

 

TETRAPHASE ACQUISITION—FAIR VALUE OF INTANGIBLE ASSETS

 

Critical Audit Matter Description

 

As described in Note 11 to the consolidated financial statements, the Company accounted for the Tetraphase Pharmaceuticals, Inc. acquisition as a business combination and allocated the purchase price amongst the tangible and intangible assets acquired and liabilities assumed. Auditing the accounting for the acquisition was complex due to the significant estimation uncertainty in determining the fair values of identified intangible assets and liabilities. The Company recorded technology and trade name intangible assets of $14.0 million and $1.5 million, respectively, and a contingent value rights obligation of $2.6 million.

 

We identified the fair valuation of intangible assets recorded in connection with the Tetraphase acquisition as a critical audit matter. The fair value estimates were based on underlying assumptions about future performance of the acquired business, which involves significant estimation uncertainty. The significant assumptions used to form the basis of the forecasted results included revenue growth rates, earnings metrics, and discount rates. These significant assumptions were forward-looking and could be affected by future economic and market conditions.

 

How We Addressed the Matter in Our Audit

 

The primary procedures we performed to address this critical audit matter included:

 

 

Obtained management’s purchase price allocation detailing fair values assigned to acquired tangible and intangible assets.

F-3


 

 

Obtained valuation report prepared by valuation specialist engaged by management to assist in the purchase price allocation, including determination of fair values assigned to acquired intangible assets, and examined valuation methods used and qualifications of specialist.

 

 

Engaged auditor valuation specialist to assist audit engagement team in its review of management’s valuation specialist's report including review of valuation methods, assumptions, and conclusions.

 

 

Examined the completeness and accuracy of the underlying data supporting the significant assumptions and estimates used in the valuation report, including historical and projected financial information.

 

/s/ BAKER TILLY US, LLP

 

We have served as the Company's auditor since 2012.

 

San Diego, California

March 8, 2021

F-4


LA JOLLA PHARMACEUTICAL COMPANY

Consolidated Balance Sheets

(in thousands, except par value and share amounts)

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,221

 

 

$

87,820

 

Accounts receivable, net

 

 

5,834

 

 

 

2,960

 

Inventory, net

 

 

6,013

 

 

 

2,211

 

Prepaid expenses and other current assets

 

 

3,388

 

 

 

4,467

 

Total current assets

 

 

36,456

 

 

 

97,458

 

Goodwill

 

 

20,123

 

 

 

-

 

Intangible assets, net

 

 

14,873

 

 

 

-

 

Right-of-use lease assets

 

 

536

 

 

 

15,491

 

Property and equipment, net

 

 

215

 

 

 

18,389

 

Restricted cash

 

 

40

 

 

 

909

 

Total assets

 

$

72,243

 

 

$

132,247

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,762

 

 

$

4,177

 

Accrued expenses

 

 

6,494

 

 

 

9,312

 

Accrued payroll and related expenses

 

 

2,878

 

 

 

8,332

 

Lease liabilities, current portion

 

 

204

 

 

 

2,766

 

Total current liabilities

 

 

12,338

 

 

 

24,587

 

Deferred royalty obligation, net

 

 

124,437

 

 

 

124,379

 

Accrued interest expense on deferred royalty obligation, less current portion

 

 

19,111

 

 

 

12,790

 

Lease liabilities, less current portion

 

 

332

 

 

 

26,481

 

Other noncurrent liabilities

 

 

4,112

 

 

 

-

 

Total liabilities

 

$

160,330

 

 

$

188,237

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Shareholders’ deficit:

 

 

 

 

 

 

 

 

Common Stock, $0.0001 par value; 100,000,000 shares authorized, 27,402,648 and 27,195,469 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively

 

 

3

 

 

 

3

 

Series C-12 Convertible Preferred Stock, $0.0001 par value; 11,000 shares authorized, 3,906 shares issued and outstanding at December 31, 2020 and December 31, 2019; and liquidation preference of $3,906 at December 31, 2020 and December 31, 2019

 

 

3,906

 

 

 

3,906

 

Additional paid-in capital

 

 

984,756

 

 

 

977,432

 

Accumulated deficit

 

 

(1,076,752

)

 

 

(1,037,331

)

Total shareholders’ deficit

 

 

(88,087

)

 

 

(55,990

)

Total liabilities and shareholders’ deficit

 

$

72,243

 

 

$

132,247

 

 

See accompanying notes.

F-5


LA JOLLA PHARMACEUTICAL COMPANY

Consolidated Statements of Operations

(in thousands, except per share amounts)

 

 

Year Ended

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

Revenue

 

 

 

 

 

 

 

 

Net product sales

 

$

33,419

 

 

$

23,054

 

Total revenue

 

 

33,419

 

 

 

23,054

 

Operating expenses

 

 

 

 

 

 

 

 

Cost of product sales

 

 

7,819

 

 

 

2,392

 

Selling, general and administrative

 

 

38,428

 

 

 

45,134

 

Research and development

 

 

23,010

 

 

 

85,329

 

Total operating expenses

 

 

69,257

 

 

 

132,855

 

Loss from operations

 

 

(35,838

)

 

 

(109,801

)

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(10,051

)

 

 

(10,774

)

Interest income

 

 

235

 

 

 

2,128

 

Other income—related party

 

 

6,279

 

 

 

1,939

 

Other income (expense)

 

 

(46

)

 

 

-

 

Total other income (expense), net

 

 

(3,583

)

 

 

(6,707

)

Net loss

 

$

(39,421

)

 

$

(116,508

)

Net loss per share, basic and diluted

 

$

(1.44

)

 

$

(4.30

)

Weighted-average common shares outstanding, basic and diluted

 

 

27,329

 

 

 

27,112

 

 

See accompanying notes.

 

 

F-6


LA JOLLA PHARMACEUTICAL COMPANY

Consolidated Statements of Shareholders’ Deficit

(in thousands)

 

 

 

Series C-12

Convertible

Preferred Stock

 

 

Series F

Convertible

Preferred Stock

 

 

Common

Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Shareholders'

(Deficit)

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

4

 

 

$

3,906

 

 

 

-

 

 

$

-

 

 

 

27,195

 

 

$

3

 

 

$

977,432

 

 

$

(1,037,331

)

 

$

(55,990

)

Share-based compensation expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,207

 

 

 

-

 

 

 

6,207

 

Issuance of common stock under 2013 Equity Plan

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

94

 

 

 

-

 

 

 

605

 

 

 

-

 

 

 

605

 

Issuance of common stock under ESPP

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

114

 

 

 

-

 

 

 

512

 

 

 

-

 

 

 

512

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(39,421

)

 

 

(39,421

)

Balance at December 31, 2020

 

 

4

 

 

$

3,906

 

 

 

-

 

 

$

-

 

 

 

27,403

 

 

$

3

 

 

$

984,756

 

 

$

(1,076,752

)

 

$

(88,087

)

 

 

 

Series C-12

Convertible

Preferred Stock

 

 

Series F

Convertible

Preferred Stock

 

 

Common

Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Shareholders'

(Deficit)

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

 

4

 

 

$

3,906

 

 

 

3

 

 

$

2,737

 

 

 

26,259

 

 

$

3

 

 

$

950,258

 

 

$

(920,983

)

 

$

35,921

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,733

 

 

 

 

 

 

 

23,733

 

Issuance of common stock under 2013 Equity Plan

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5

 

 

 

-

 

 

 

31

 

 

 

-

 

 

 

31

 

Issuance of common stock under ESPP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

149

 

 

 

 

 

 

 

833

 

 

 

 

 

 

 

833

 

Issuance of common stock for conversion of Series F Preferred Stock

 

 

-

 

 

 

-

 

 

 

(3

)

 

 

(2,737

)

 

 

782

 

 

 

-

 

 

 

2,737

 

 

 

-

 

 

 

-

 

Cumulative-effect adjustment from adoption of ASU 2018-07

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(160

)

 

 

160

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

(116,508

)

 

 

(116,508

)

Balance at December 31, 2019

 

 

4

 

 

$

3,906

 

 

 

-

 

 

$

-

 

 

 

27,195

 

 

$

3

 

 

$

977,432

 

 

$

(1,037,331

)

 

$

(55,990

)

 

See accompanying notes.

 

F-7


LA JOLLA PHARMACEUTICAL COMPANY

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(39,421

)

 

$

(116,508

)

Adjustments to reconcile net loss to net cash used for operating activities:

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

6,207

 

 

 

23,733

 

Depreciation expense

 

 

2,188

 

 

 

4,552

 

Non-cash interest expense

 

 

6,379

 

 

 

8,775

 

Inventory fair value step-up adjustment included in cost of product sales

 

 

2,458

 

 

 

-

 

Amortization of intangible assets

 

 

647

 

 

 

-

 

Change in fair value of contingent value rights

 

 

(800

)

 

 

-

 

Amortization of right-of-use lease assets

 

 

1,249

 

 

 

1,307

 

Loss on short-term investments

 

 

502

 

 

 

-

 

Loss on disposal of property and equipment, net of gain on lease termination

 

 

10

 

 

 

24

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(1,687

)

 

 

(1,579

)

Inventory, net

 

 

(1,493

)

 

 

(191

)

Prepaid expenses and other current assets

 

 

2,297

 

 

 

644

 

Accounts payable

 

 

(2,815

)

 

 

(4,395

)

Accrued expenses

 

 

(5,781

)

 

 

395

 

Accrued payroll and related expenses

 

 

(5,454

)

 

 

823

 

Lease liabilities

 

 

(2,126

)

 

 

(2,530

)

Net cash used for operating activities

 

 

(37,640

)

 

 

(84,950

)

Investing activities

 

 

 

 

 

 

 

 

Acquisition of Tetraphase, net of cash, cash equivalents and restricted cash acquired

 

 

(33,513

)

 

 

-

 

Purchases of short-term investments

 

 

(2,999

)

 

 

-

 

Purchases of property and equipment

 

 

-

 

 

 

(698

)

Proceeds from the sale of property and equipment

 

 

3,070

 

 

 

-

 

Proceeds from the sale of short-term investments

 

 

2,497

 

 

 

-

 

Net cash used for investing activities

 

 

(30,945

)

 

 

(698

)

Financing activities

 

 

 

 

 

 

 

 

Net proceeds from issuance of common stock under 2013 Equity Plan

 

 

605

 

 

 

31

 

Net proceeds from issuance of common stock under ESPP

 

 

512

 

 

 

833

 

Net cash provided by financing activities

 

 

1,117

 

 

 

864

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(67,468

)

 

 

(84,784

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

88,729

 

 

 

173,513

 

Cash, cash equivalents and restricted cash, end of period

 

$

21,261

 

 

$

88,729

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Initial recognition of right-of-use lease asset

 

$

536

 

 

$

16,798

 

Conversion of Series F Convertible Preferred Stock into common stock

 

$

-

 

 

$

2,737

 

Cumulative-effect adjustment from adoption of ASU 2018-07

 

$

-

 

 

$

(160

)

Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,221

 

 

$

87,820

 

Restricted cash

 

 

40

 

 

 

909

 

Total cash, cash equivalents and restricted cash

 

$

21,261

 

 

$

88,729

 

 

See accompanying notes.

 

 

F-8


LA JOLLA PHARMACEUTICAL COMPANY

Notes to Consolidated Financial Statements

1.  Description of Business and Summary of Significant Accounting Policies

La Jolla Pharmaceutical Company is dedicated to the development and commercialization of innovative therapies that improve outcomes in patients suffering from life-threatening diseases. GIAPREZA™ (angiotensin II) injection is approved by the U.S. Food and Drug Administration (“FDA”) as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. XERAVA™ (eravacycline) for injection is approved by the FDA as a tetracycline class antibacterial indicated for the treatment of complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and older.

On July 28, 2020, La Jolla completed its acquisition of Tetraphase Pharmaceuticals, Inc. (“Tetraphase”), a biopharmaceutical company focused on commercializing XERAVA, for $43 million in upfront cash plus potential future cash payments of up to $16 million. The Company’s consolidated financial results for the period ended December 31, 2020 include Tetraphase’s financial results subsequent to the acquisition closing date of July 28, 2020 (see Note 11).

As of December 31, 2020 and December 31, 2019, the Company had cash and cash equivalents of $21.2 million and $87.8 million, respectively. Subsequent to December 31, 2020, the Company received $19.1 million in connection with the PAION License (see Note 15). Based on the Company’s current operating plans and projections, the Company expects that its existing cash and cash equivalents will be sufficient to fund operations for at least one year from the date this Annual Report on Form 10-K is filed with the U.S. Securities and Exchange Commission (the “SEC”).

2.  Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The Company’s consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in its consolidated financial statements and the accompanying notes. Actual results may differ materially from these estimates.

Certain amounts previously reported in the financial statements have been reclassified to conform to the current year presentation. Such reclassifications did not affect net loss, shareholders’ (deficit) equity or cash flows.

Summary of Significant Accounting Policies

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with maturities of three months or less when purchased as cash equivalents. The Company maintains its cash in checking and savings accounts. Income generated from cash held in savings accounts is recorded as interest income. The carrying value of the Company’s savings accounts is included in cash and approximates the fair value. Cash is classified as restricted cash when certain funds are reserved for a specific purpose and are not available for immediate or general business use.

Accounts Receivable, Net

Accounts receivable are recorded net of customers’ allowances for prompt-pay discounts, chargebacks and doubtful accounts. Allowances for prompt-pay discounts and chargebacks are based on contractual terms. The Company estimates the allowance for doubtful accounts based on existing contractual payment terms,

F-9


 

 

actual payment patterns of its customers and individual customer circumstances. As of December 31, 2020, the Company did not have any allowances for doubtful accounts.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash. The Company maintains its cash in checking and savings accounts at federally insured financial institutions in excess of federally insured limits.

During the year ended December 31, 2020, 521 hospitals in the U.S. purchased GIAPREZA. During the year ended December 31, 2020, 750 hospitals and other healthcare organizations in the U.S. purchased XERAVA. Hospitals and other healthcare organizations purchase our products through a network of specialty and wholesale distributors. These specialty and wholesale distributors are considered our customers for accounting purposes. The Company does not believe that the loss of one of these distributors would significantly impact the ability to distribute our products, as the Company expects that sales volume would be absorbed by the remaining distributors.

The following table includes the percentage of U.S. net product sales and accounts receivable balances for the Company’s three major customers, each of which comprised 10% or more of its U.S. net product sales:

 

 

U.S. Net Product

Sales

 

 

Accounts

Receivable

 

 

Year Ended

December 31, 2020

 

 

As of December 31, 2020

 

Customer A

 

37

%

 

 

36

%

Customer B

 

33

%

 

 

33

%

Customer C

 

27

%

 

 

28

%

Total

 

97

%

 

 

97

%

 

Inventory, Net

Inventory is stated at the lower of cost or estimated net realizable value on a first-in, first-out basis. The Company periodically analyzes inventory levels and writes down inventory as cost of product sales when: inventory has become obsolete; inventory has a cost basis in excess of its estimated net realizable value; or inventory quantities are in excess of expected product sales.

Fair Value Measurements

The Company follows the provisions of Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, ASC 820-10 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1 observable inputs such as quoted prices in active markets; Level 2 inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3 unobservable inputs, in which there is little or no market data, which require the Company to develop its own assumptions. The hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

F-10


 

 

The Company’s financial instruments include cash and cash equivalents, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued expenses. The carrying amounts reported in the balance sheets for these financial instruments approximate fair value because of their short-term nature. The Company's acquired intangible assets, deferred royalty obligation (see Note 5) and contingent value rights (see Note 11) are classified as Level 3 in the ASC 820-10 three-tier fair value hierarchy. As of December 31, 2020 and 2019, the Company had no financial assets or liabilities measured at fair value on a recurring basis, other than contingent value rights (see Note 11).

Business Combinations

The Company accounts for business combinations using the acquisition method pursuant to FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in La Jolla's financial results beginning on the respective acquisition dates, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized as part of the Purchase Price at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration liabilities will be included in other income (expense), net in the consolidated statements of operations. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.

Intangible Assets

Intangible assets acquired in a business combination are initially recorded at fair value. Intangible assets with a definite useful life are amortized on a straight-line basis over the estimated useful life of the related assets. Intangible assets with an indefinite useful life are not amortized.

The Company reviews its intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the asset, including its eventual residual value, is compared to the carrying value to determine whether impairment exists. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Fair value is estimated through discounted cash flow models to project cash flows from the asset. The Company recognized no impairment charge for the year ended December 31, 2020.

Goodwill

Goodwill represents the excess of the Purchase Price over the fair value of the net assets acquired as of the acquisition date. Goodwill has an indefinite useful life and is not amortized.

The Company reviews its goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the Company may exceed its fair value. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the Company is less than its carrying amount, including goodwill. If that is the case, the Company performs a quantitative impairment test, and, if the carrying amount of the Company exceeds its fair value, then the Company will recognize an impairment charge for the amount by which its carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill. The Company recognized no impairment charge for the year ended December 31, 2020.

F-11


 

 

Property and Equipment, Net

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from two to seven years. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the lease term or the estimated useful life of the related assets. Maintenance and repairs are charged to operating expense as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in other income (expense).

Leases

For operating leases other than short-term leases, at lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term. The Company calculates the present value of lease payments using the discount rate implicit in the lease, unless that rate cannot be readily determined. In that case, the Company uses its incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis an amount equal to the lease payments over the expected lease term. The Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date.

After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement; and (ii) the right-of-use lease asset based on the remeasured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received and any initial direct costs are amortized on a straight-line basis over the expected lease term. Rent expense is recorded on a straight-line basis over the expected lease term.

Revenue Recognition

The Company adopted FASB ASC Topic 606—Revenue from Contracts with Customers (“ASC 606”) at the time of its first commercial shipment of GIAPREZA in the first quarter of 2018. The Company had no revenue from product sales prior to the first quarter of 2018. There have been no contract assets or liabilities recorded to date relating to product sales.

Under ASC 606, the Company recognizes revenue when its customers obtain control of the Company’s product, which typically occurs on delivery. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company performs the following 5 steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies the relevant performance obligations.

Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of chargebacks, discounts, returns, Medicaid rebates and administrative fees. Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted. These items include:

 

Chargebacks—Chargebacks are discounts the Company provides to distributors in the event that the sales prices to end users are below the distributors’ acquisition price. This may occur due to a direct contract with a health system, a group purchasing organization (“GPO”) agreement or a sale to a government facility. Chargebacks are estimated based on known chargeback rates and recorded as a reduction of revenue on delivery to the Company’s customers.

F-12


 

 

 

Discounts—The Company offers customers various forms of incentives and consideration, including prompt-pay and other discounts. The Company estimates discounts primarily based on contractual terms. These discounts are recorded as a reduction of revenue on delivery to the Company’s customers.

 

Returns—The Company offers customers a limited right of return, generally for damaged or expired product. The Company estimates returns based on an internal analysis, which includes actual experience. The estimates for returns are recorded as a reduction of revenue on delivery to the Company’s customers.

 

Medicaid Rebates—We participate in Medicaid rebate programs, which provide assistance to certain low-income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we pay a rebate to each participating state, generally within three months after the quarter in which product was sold. The estimates for rebates are recorded as a reduction of revenue on delivery to the Company’s customers.

 

Administrative Fees—The Company pays administrative fees to GPOs for services and access to data. Additionally, the Company pays an Industrial Funding Fee as part of the U.S. General Services Administration’s Federal Supply Schedules program. These fees are based on contracted terms and are paid after the quarter in which the product was purchased by the applicable GPO or government agency. Administrative fees are recorded as a reduction of revenue on delivery to customers.

The Company will continue to assess its estimates of variable consideration as it accumulates additional historical data and will adjust these estimates accordingly.

Shipping and Handling Expense

Shipping and handling expense is included in cost of product sales.

Research and Development Expense

Research and development expense includes salaries and benefits, facilities and other overhead costs, research-related manufacturing costs, contract service and clinical and preclinical-related service costs performed by clinical research organizations, research institutions and other outside service providers. Research and development expense is charged to operations as incurred when the expenditures relate to the Company’s research and development efforts and have no alternative future uses.

In accordance with certain research and development agreements, the Company is obligated to make certain upfront payments upon execution of the agreement. Advance payments, including nonrefundable amounts, for materials or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the related goods are delivered or the related services are performed.

Acquisition or milestone payments that the Company makes in connection with in-licensed technology are expensed as incurred when there is uncertainty in receiving future economic benefits from the licensed technology. The Company considers the future economic benefits from the licensed technology to be uncertain until such licensed technology is incorporated into products that are approved for marketing by the FDA or when other significant risk factors are abated. For accounting purposes, management has viewed future economic benefits for all of the Company’s licensed technology to be uncertain.

Patent Costs

Legal costs in connection with approved patents and patent applications are expensed as incurred, as recoverability of such expenditures is uncertain. These costs are recorded in selling, general and administrative expense in the consolidated statements of operations.

F-13


 

 

Share-based Compensation Expense

The Company issues stock options to directors, officers, employees and certain consultants. Share-based compensation expense represents the estimated fair value of equity awards, which are comprised of stock options, expected to vest. The Company estimates the fair value of each equity award on the date of grant using the Black-Scholes option-pricing model and recognizes share-based compensation expense over the requisite service period of the equity awards (usually the vesting period) on a straight-line basis. For stock options with a performance condition, the Company recognizes expense in accordance with Financial Accounting Standards Board Accounting Standards Codification 718-10-25-20.

Interest Expense

Interest expense and the amortization of issuance costs related to the deferred royalty obligation (see Note 5) are recognized over the expected repayment term of the deferred royalty obligation using the effective interest method. The assumptions used in determining the expected repayment term of the deferred royalty obligation require the Company to make estimates that could impact the effective interest rate. Each reporting period, the Company estimates the expected repayment term of the deferred royalty obligation based on forecasted net sales of GIAPREZA. Changes in interest expense resulting from changes in the effective interest rate, if any, are recorded on a prospective basis.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. A valuation allowance is applied against any deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the consolidated financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the consolidated statements of operations.

Net Loss per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration of potential common shares. Diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding plus potential common shares. Convertible preferred stock and stock options are considered potential common shares and are included in the calculation of diluted net loss per share using the treasury stock method when their effect is dilutive. Potential common shares are excluded from the calculation of diluted net loss per share when their effect is anti-dilutive.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. There have been no items qualifying as other comprehensive loss, and, therefore, comprehensive loss for the periods reported was comprised solely of the Company’s net loss.

F-14


 

 

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.

Recent Accounting Pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position and result of operations.

3.  Net Loss per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration of potential common shares. Diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding plus potential common shares. Convertible preferred stock and stock options are considered potential common shares and are included in the calculation of diluted net loss per share using the treasury stock method when their effect is dilutive. Potential common shares are excluded from the calculation of diluted net loss per share when their effect is anti-dilutive. As of December 31, 2020 and 2019, there were 10.9 million and 12.4 million potential common shares, respectively, that were excluded from the calculation of diluted net loss per share because their effect was anti-dilutive.

4.  Balance Sheet Details

Restricted Cash

Restricted cash as of December 31, 2020 consisted of a $40,000 security deposit for the Company’s corporate purchasing credit card. Restricted cash as of December 31, 2019 consisted of a $0.9 million standby letter of credit provided in lieu of a security deposit for the San Diego Lease (see Note 6).

Inventory, Net

Inventory, net consisted of the following (in thousands):

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Raw materials

 

$

802

 

 

$

-

 

Work-in-process

 

 

3,213

 

 

 

1,505

 

Finished goods

 

 

1,998

 

 

 

706

 

Total inventory, net

 

$

6,013

 

 

$

2,211

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020, inventory, net includes $0.9 million of the fair value step-up adjustment to Tetraphase’s inventory recorded in connection with the acquisition of Tetraphase (see Note 11). As of December 31, 2020 and December 31, 2019, total inventory is recorded net of inventory reserves of $0.9 million and $0.1 million, respectively.    

F-15


 

 

Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Prepaid manufacturing costs

 

$

930

 

 

$

351

 

Prepaid clinical costs

 

 

820

 

 

 

3,051

 

Prepaid insurance

 

 

505

 

 

 

415

 

Other prepaid expenses and current assets

 

 

1,133

 

 

 

650

 

Total prepaid expenses and other current assets

 

$

3,388

 

 

$

4,467

 

 

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Software

 

$

733

 

 

$

733

 

Computer hardware

 

 

310

 

 

 

1,296

 

Furniture and fixtures

 

 

309

 

 

 

2,598

 

Leasehold improvements

 

 

-

 

 

 

14,504

 

Lab equipment

 

 

-

 

 

 

9,665

 

Total property and equipment, gross

 

 

1,352

 

 

 

28,796

 

Accumulated depreciation and amortization

 

 

(1,137

)

 

 

(10,407

)

Total property and equipment, net

 

$

215

 

 

$

18,389

 

 

The Company recorded a loss of approximately $13.0 million, net of $3.1 million of cash proceeds, in other income (expense), net, related to the disposal of tenant improvements and certain equipment in connection with the terminations of the San Diego and Watertown Leases (see Note 6). The $13.0 million loss is recorded in the consolidated statements of cash flows net of the gain from the terminations of the San Diego and Watertown Leases (see Note 6).

Intangible Assets, Net

Intangible assets, net consisted of the following (in thousands):

 

 

 

Weighted-average

 

December 31,

 

 

December 31,

 

 

 

Years

 

2020

 

 

2019

 

Technology

 

10

 

$

14,000

 

 

$

-

 

Trade name

 

10

 

 

1,520

 

 

 

-

 

Total intangible assets, gross

 

 

 

 

15,520

 

 

 

-

 

Accumulated amortization

 

 

 

 

(647

)

 

 

-

 

Total intangible assets, net

 

 

 

$

14,873

 

 

$

-

 

 

The intangible assets were recorded in connection with the acquisition of Tetraphase (see Note 11).

F-16


 

 

Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued interest expense on deferred royalty obligation, current portion

 

$

3,567

 

 

$

2,692

 

Accrued manufacturing costs

 

 

627

 

 

 

1,339

 

Accrued professional fees

 

 

660

 

 

 

387

 

Accrued clinical costs

 

 

20

 

 

 

3,496

 

Accrued other

 

 

1,620

 

 

 

1,398

 

Total accrued expenses

 

$

6,494

 

 

$

9,312

 

 

Other Noncurrent Liabilities

Other noncurrent liabilities consisted of the following (in thousands):

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Paycheck Protection Program loan

 

 

2,302

 

 

 

-

 

Fair value of CVRs (see Note 11)

 

 

1,810

 

 

 

-

 

Total other noncurrent liabilities

 

$

4,112

 

 

$

-

 

 

On April 22, 2020, Tetraphase entered into a promissory note for $2.3 million under the Paycheck Protection Program (the “PPP Loan”). The interest rate on the PPP Loan is 1.0% per annum. The PPP Loan is unsecured and guaranteed by the U.S. Small Business Administration (the “SBA”). The principal amount of the PPP Loan may be forgiven under the Paycheck Protection Program, subject to certain requirements and to the extent that the PPP Loan proceeds are used to pay permitted expenses, including certain payroll, rent and utility payments. The Company intends to apply for forgiveness of the PPP Loan. The Company will be obligated to make monthly payments of principal and interest with respect to any unforgiven portion of the PPP Loan. The obligation to repay the PPP Loan may be accelerated upon the occurrence of an event of default.

5.  Deferred Royalty Obligation

In May 2018, the Company closed a $125.0 million royalty financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the Royalty Agreement, the Company received $125.0 million in exchange for tiered royalty payments on worldwide net sales of GIAPREZA. HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA beginning April 1, 2018. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. Through December 31, 2021, the royalty rate will be a maximum of 10%. Starting January 1, 2022, the maximum royalty rate may increase by 4% if an agreed-upon, cumulative net product sales threshold has not been met, and, starting January 1, 2024, the maximum royalty rate may increase by an additional 4% if a different agreed-upon, cumulative net product sales threshold has not been met. The Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $225.0 million. The Royalty Agreement expires upon the first to occur of January 1, 2031 or when the maximum aggregate royalty payments have been made. The Royalty Agreement was entered into by the Company’s wholly owned subsidiary, La Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against La Jolla Pharmaceutical Company or any assets other than GIAPREZA.

On receipt of the $125.0 million payment from HCR, the Company recorded a deferred royalty obligation of $125.0 million, net of issuance costs of $0.7 million. For the year ended December 31, 2020 and 2019, the Company recognized interest expense, including amortization of the obligation discount, of $10.0 million and $10.8 million, respectively. The carrying value of the deferred royalty obligation as of December 31, 2020 was $124.4 million, net of unamortized obligation discount of $0.6 million, and was classified as noncurrent. The related accrued interest expense was $22.7 million and $15.5 million as of December 31, 2020 and 2019,

F-17


 

 

respectively, of which $19.1 million and $12.8 million was classified as noncurrent liabilities, respectively. During the year ended December 31, 2020, and 2019, the Company made royalty payments to HCR of $2.8 million and $2.0 million, respectively, and, as of December 31, 2020, the Company recorded royalty obligations payable of $0.9 million in accrued expenses. The deferred royalty obligation is classified as Level 3 in the ASC Topic 820-10, three-tier fair value hierarchy, and its carrying value approximates fair value.

Under the terms of the Royalty Agreement, La Jolla Pharma, LLC has certain obligations, including the obligation to use commercially reasonable and diligent efforts to commercialize GIAPREZA. If La Jolla Pharma, LLC is held to not have met these obligations, HCR would have the right to terminate the Royalty Agreement and demand payment from La Jolla Pharma, LLC of either $125.0 million or $225.0 million (depending on which obligation La Jolla Pharma, LLC is held to not have met), minus aggregate royalties already paid to HCR. In the event that La Jolla Pharma, LLC fails to timely pay such amount if and when due, HCR would have the right to foreclose on the GIAPREZA-related assets. The Company concluded that certain of these contract provisions that could result in an acceleration of amounts due under the Royalty Agreement are embedded derivatives that require bifurcation from the deferred royalty obligation and fair value recognition. The Company determined the fair value of each derivative by assessing the probability of each event occurring, as well as the potential repayment amounts and timing of such repayments that would result under various scenarios. As a result of this assessment, the Company determined that the fair value of the embedded derivatives is immaterial as of December 31, 2020, and 2019. Each reporting period, the Company estimates the fair value of the embedded derivatives until the features lapse and/or the termination of the Royalty Agreement. Any change in the fair value of the embedded derivatives will be recorded as either a gain or loss on the consolidated statements of operations.

6.  Commitments and Contingencies

Lease Commitments

Waltham Lease

 

On December 21, 2020, the Company entered into a sublease agreement with Cotiviti, Inc. to lease office space at 201 Jones Road, Waltham, Massachusetts (the “Waltham Lease”). The Waltham Lease commenced on December 21, 2020 and expires on November 30, 2023. In addition to rent, the Waltham Lease requires the Company to pay certain taxes, insurance and operating costs relating to the leased premises (collectively, “Lease Operating Costs”). The Waltham Lease contains customary default provisions, representations, warranties and covenants. The Waltham Lease is classified as an operating lease.

 

San Diego Lease

On December 29, 2016, the Company entered into an agreement with BMR-Axiom LP (the “San Diego Landlord”) to lease office and laboratory space located at 4550 Towne Centre Court, San Diego, California (the “San Diego Lease”) for a period of 10 years commencing on October 30, 2017 (the “Initial Lease Term”). The Company had an option to extend the San Diego Lease for an additional 5 years at the end of the Initial Lease Term.

On August 6, 2020, La Jolla received notice from the Landlord that the Landlord exercised its option to terminate the San Diego Lease effective August 31, 2020. The Landlord exercised its right to terminate the San Diego Lease and recapture the property after La Jolla provided notice to the Landlord of its intent to assign the San Diego Lease. In connection with the termination of the San Diego Lease, La Jolla will have no further obligations under the San Diego Lease after the August 31, 2020 termination date, including with respect to future payments under the San Diego Lease.

The Company provided a standby letter of credit for $0.9 million in lieu of a security deposit. This amount decreased to $0.6 million after year two of the Initial Lease Term. As of December 31, 2020, there was no cash pledged as collateral for such letter of credit and recorded as restricted cash.

F-18


 

 

As of December 31, 2020, there was no lease liability and corresponding right-of-use asset related to the San Diego Lease.

In September 2020, the Company entered into a sublease agreement for office space in San Diego, California with an entity of which the Chairman of the Company’s board of directors is also the chairman and chief executive officer. The lease is cancellable without penalty by providing 30-days’ written notice. The lease is a short-term lease for accounting purposes. The Company made payments of approximately $64,000 under the lease in 2020. The Company recognizes the lease payments in the consolidated statements of operations and does not record a lease liability or right-of-use asset for this lease.

Watertown Lease

On November 16, 2006, Tetraphase entered into an agreement with ARE-480 Arsenal Street, LLC (the “Watertown Landlord”), to lease office and laboratory space located at 480 Arsenal Way, Watertown, Massachusetts (the “Watertown Lease”). The Watertown Lease originally provided for an expiration on November 30, 2019. In November 2018, Tetraphase entered into an Eighth Amendment to the Watertown Lease to extend the term of the lease through November 30, 2022 (the “Lease Term”). In January 2020, Tetraphase entered into a Ninth Amendment to the Watertown Lease to surrender a portion of its leased space, which reduced the leased premises by a total of 15,899 square feet from approximately 37,438 square feet to approximately 21,539 square feet.

On December 14, 2020, Tetraphase entered into a Termination of Lease and Voluntary Surrender of Premises Agreement with the Watertown Landlord for the Watertown Lease, effective December 31, 2020. In connection with the Lease Termination Agreement, La Jolla will pay the Landlord approximately $0.5 million and will otherwise have no further obligations under the Watertown Lease, including with respect to the estimated remaining $2.1 million of future lease payments.

Tetraphase provided a standby letter of credit for $0.2 million in lieu of a security deposit. As of December 31, 2020, there was no cash pledged as collateral for such letter of credit and recorded as restricted cash related to the Watertown Lease. As of December 31, 2020, there was no lease liability and corresponding right-of-use asset related to the Watertown Lease.

 

Accounting for Operating Leases

 

The Company recorded lease liabilities and right-of-use lease assets for certain operating leases based on the present value of lease payments over the expected lease term, discounted using the Company’s incremental borrowing rate. The options to extend the operating leases were not recognized as part of the Company’s lease liabilities and right-of-use lease assets. Lease expense under leases was $2.3 million and $2.9 million for the years ended December 31, 2020 and 2019, respectively. Cash paid for amounts included in the measurement of lease liabilities was $3.0 million and $3.8 million for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, the weighted-average remaining lease term and the weighted-average discount rate for the operating leases was 2.8 years and 4.0%, respectively.

 

In connection with the terminations of the San Diego Lease and the Watertown Lease, the Company recorded a non-cash gain of approximately $13.0 million as other income (expense), net, in connection with the write-off of the lease liabilities and corresponding right-of-use lease assets. The $13.0 million gain is recorded in the consolidated statements of operations and consolidated statements of cash flows net of the loss on disposal of property and equipment in connection with the termination of such leases (see Note 4).

 

F-19


 

 

Future minimum lease payments, excluding Lease Operating Costs, under the Waltham Lease as of December 31, 2020 are as follows (in thousands):

 

2021

 

$

219

 

2022

 

 

181

 

2023

 

 

166

 

Thereafter

 

 

-

 

Total future minimum lease payments

 

 

566

 

Less: discount

 

 

(30

)

Total lease liabilities

 

$

536

 

 

Contingencies

From time to time, the Company may become subject to claims and litigation arising in the ordinary course of business. The Company is not a party to any material legal proceedings, nor is it aware of any material pending or threatened litigation.

7.  Shareholders’ Equity

Preferred Stock

As of December 31, 2020 and December 31, 2019, 3,906 shares of Series C-12 Convertible Preferred Stock (“Series C-12 Preferred”) were issued, outstanding and convertible into 6,735,378 shares of common stock. In January 2019, the Company issued 782,031 shares of common stock upon the conversion of 2,737 shares of Series F Convertible Preferred Stock. As of December 31, 2020 and December 31, 2019, there were no shares of Series F Convertible Preferred Stock issued and outstanding.

8.  Equity Incentive Plans

2013 Equity Incentive Plan

In September 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Equity Plan”). The 2013 Equity Plan is an omnibus equity compensation plan that permits the issuance of various types of share-based compensation awards, including stock options, restricted stock awards, stock appreciation rights and restricted stock units, as well as cash awards, to directors, officers, employees and eligible consultants. The 2013 Equity Plan has a 10-year term and permits the issuance of incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“IRC”). The administrator under the plan has broad discretion to establish the terms of awards, including the size, term, exercise price and vesting conditions. Generally, grants to employees vest over four years, with 25% vesting on the one-year anniversary and the remainder vesting either quarterly or monthly thereafter; grants to non-employee directors generally vest in full on the one-year anniversary of the grant date.

A total of 9,600,000 shares of common stock have been reserved for issuance under the La Jolla Pharmaceutical Company 2013 Equity Incentive Plan (the “2013 Equity Plan”). As of December 31, 2020, 5,478,334 shares of common stock remained available for future grants under the 2013 Equity Plan.

2018 Employee Stock Purchase Plan

In July 2018, the Company adopted the 2018 Employee Stock Purchase Plan (the “ESPP”). Under the ESPP, eligible employees may purchase shares of the Company’s common stock twice per month at a price equal to 85% of the closing price of shares of the Company’s common stock on the date of each purchase. Eligible employees purchasing shares under the ESPP are subject to an annual cap equal to the lesser of $25,000 or 10% of the employee’s annual cash compensation. Shares purchased under the ESPP cannot be sold for a period of one year following the purchase date (or such shorter period of time if the participating employee’s employment terminates before this one-year anniversary).

F-20


 

 

A total of 750,000 shares of common stock have been reserved for issuance under the La Jolla Pharmaceutical Company 2018 Employee Stock Purchase Plan (the “ESPP”). As of December 31, 2020, 455,768 shares of common stock remained available for future grants under the ESPP.

Equity Awards

The activity related to equity awards, which are comprised of stock options, during the year ended December 31, 2020 is summarized as follows:

 

 

 

Equity

Awards

 

 

Weighted-

average

Exercise Price

per Share

 

 

Weighted-

average

Remaining

Contractual

Term(1)

(years)

 

 

Aggregate

Intrinsic

Value(2)

 

Outstanding at December 31, 2019

 

 

5,616,840

 

 

$

19.50

 

 

 

 

 

 

 

 

 

Granted

 

 

3,458,513

 

 

$

4.61

 

 

 

 

 

 

 

 

 

Exercised

 

 

(94,219

)

 

$

6.42

 

 

 

 

 

 

 

 

 

Cancelled/forfeited

 

 

(4,859,468

)

 

$

18.34

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2020

 

 

4,121,666

 

 

$

8.67

 

 

 

8.48

 

 

$

7,792

 

Exercisable at December 31, 2020

 

 

1,072,061

 

 

$

18.37

 

 

 

5.95

 

 

$

1,544

 

 

(1) Represents the weighted-average remaining contractual term of stock options.

(2) Aggregate intrinsic value represents the product of the number of equity awards outstanding or equity awards exercisable multiplied by the difference between the Company’s closing stock price per share on the last trading day of the period, which was $3.88 as of December 31, 2020, and the exercise price.

The total intrinsic value of equity awards exercised during the years ended December 31, 2020 and 2019 were $0.1 million and less than $0.1 million, respectively. The total grant-date fair value of equity awards vested during the years ended December 31, 2020 and 2019 were $8.4 million and $25.9 million, respectively.

Share-based Compensation Expense

For the years ended December 31, 2020 and 2019, the weighted-average grant date fair value per stock option were $3.48 and $4.99, respectively. The Company estimates the fair value of each stock option grant on the grant date using the Black-Scholes option-pricing model (the “Black-Scholes model”) with the following assumptions:

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Expected volatility

 

 

93

%

 

 

97

%

Expected term (years)

 

 

6.07

 

 

 

6.05

 

Risk-free interest rate

 

 

0.7

%

 

 

2.5

%

Dividend yield

 

-

 

 

-

 

 

Expected volatility is based on the historical volatility of shares of the Company’s common stock. In determining the expected term of employee stock options, the Company uses the “simplified” method. The expected term assumptions for stock options granted to nonemployees, other than nonemployee directors, are based upon the contractual term of the stock options. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the stock options in effect at the time of the grants. The dividend yield assumption is based on the expectation of no future dividend payments by the Company.

In addition to assumptions used in the Black-Scholes model, the Company reduces share-based compensation expense based on actual forfeitures in the period that each forfeiture occurs.

F-21


 

 

Under the ESPP, eligible employees may purchase shares of the Company’s common stock twice per month at a price equal to 85% of the closing price of shares of the Company’s common stock on the date of each purchase. The benefit received by the employees, which is equal to a 15% discount on the shares of the Company’s common stock purchased, is recognized as share-based compensation expense on the date of each purchase. The Company recorded less than $0.1 million of share-based compensation expense related to the ESPP for each year ended December 31, 2020 and 2019. As of December 31, 2020, there was no unrecognized share-based compensation expense related to shares of common stock issued under the ESPP.

The classification of share-based compensation expense is summarized as follows (in thousands):

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

Selling, general and administrative

 

$

2,808

 

 

$

8,872

 

Research and development

 

 

3,399

 

 

 

14,861

 

Total share-based compensation expense

 

$

6,207

 

 

$

23,733

 

 

As of December 31, 2020, total unrecognized share-based compensation expense related to unvested equity awards was $10.6 million, which is expected to be recognized over a weighted-average period of 3.3 years. As of December 31, 2020, there was no unrecognized share-based compensation expense related to shares of common stock issued under the ESPP.

9.  Other Income—Related Party

The Company has a non-voting profits interest in a related party, which provides the Company with the potential to receive a portion of the future distributions of profits, if any. Investment funds affiliated with the Chairman of the Company’s board of directors have a controlling interest in the related party. During the years ended December 31, 2020 and 2019, the Company received distributions of $6.3 million and $1.9 million, respectively, in connection with this profits interest.

10.  License Agreements

In-license Agreements

George Washington University License

In December 2014, the Company entered into a patent license agreement with George Washington University (“GW”), which was subsequently amended and restated (the “GW License”) and assigned to La Jolla Pharma, LLC. Pursuant to the GW License, GW exclusively licensed to the Company certain intellectual property rights relating to GIAPREZA, including the exclusive rights to certain issued patents and patent applications covering GIAPREZA. Under the GW License, La Jolla Pharma, LLC is obligated to use commercially reasonable efforts to develop, commercialize, market and sell GIAPREZA. The Company has paid a one-time license initiation fee, annual maintenance fees, an amendment fee, additional payments following the achievement of certain development and regulatory milestones and royalties. As a result of the European Commission’s approval of GIAPREZA in August 2019, the Company made a milestone payment to GW in the amount of $0.5 million in the first quarter of 2020. The Company is obligated to pay a 6% royalty on net sales of GIAPREZA and 15% on payments from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering GIAPREZA. During the years ended December 31, 2020 and 2019, the Company made royalty payments to GW of $1.7 million and $1.2 million, respectively.

Harvard University License

In August 2006, Tetraphase entered into a license agreement with Harvard University (“Harvard”), which was subsequently amended and restated (the “Harvard License”). Pursuant to the Harvard License, Harvard exclusively licensed to the Company certain intellectual property rights relating to tetracycline-based products, including XERAVA, including the exclusive rights to certain issued patents and patent applications covering

F-22


 

 

such products. Under the Harvard License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell tetracycline-based products, including XERAVA. For each product covered by the Harvard License, the Company is obligated to make certain payments for the following: (i) up to approximately $15.1 million upon the achievement of certain clinical development and regulatory milestones; (ii) a 5% royalty on direct U.S. net sales of XERAVA; (iii) a single-digit tiered royalty on direct ex-U.S. net sales of XERAVA, starting at a minimum royalty rate of 4.5%, with step-ups to a maximum royalty of 7.5% based on the achievement of annual net product sales thresholds; and (iv) 20% on payments received from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering tetracycline-based products, including XERAVA. Subsequent to July 28, 2020 and through December 31, 2020, the Company paid $0.2 million of royalties to Harvard and did not make any payments to Harvard related to clinical development and regulatory milestones.

Paratek Pharmaceuticals, Inc. License

In March 2019, Tetraphase entered into a license agreement with Paratek Pharmaceuticals, Inc. (“Paratek”), which was subsequently amended and restated (the “Paratek License”). Pursuant to the Paratek License, Paratek non-exclusively licensed to the Company certain intellectual property rights relating to XERAVA, including non-exclusive rights to certain issued patents and patent applications covering XERAVA. The Company is obligated pay Paratek a 2.25% royalty based on direct U.S. net sales of XERAVA. The Company’s obligation to pay royalties with respect to the licensed product is retroactive to the date of the first commercial sale of XERAVA and shall continue until there are no longer any valid claims of the Paratek patents, which will expire in October 2023. Subsequent to July 28, 2020 and through December 31, 2020, the Company paid less than $0.1 million of royalties to Paratek.

Out-license Agreement

Everest Medicines Limited License

In February 2018, Tetraphase entered into a license agreement with Everest Medicines Limited (“Everest”), which was subsequently amended and restated (the “Everest License”). Pursuant to the Everest License, Tetraphase granted Everest an exclusive license to develop and commercialize XERAVA for the treatment of cIAI and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Everest Territory”). The Company is eligible to receive up to an aggregate of $11.0 million in future clinical development and regulatory milestone payments and up to an aggregate of $20.0 million in sales milestone payments. The Company is also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Everest Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Everest Territory until the latest to occur of: (1) the last-to-expire of specified patent rights in such jurisdiction in the Everest Territory; (2) expiration of marketing or regulatory exclusivity in such jurisdiction in the Everest Territory; or (3) 10 years after the first commercial sale of a product in such jurisdiction in the Everest Territory. In addition, royalties payable under the Everest License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction, with any such reductions capped at certain percentages of the amounts otherwise payable during the applicable royalty payment period. Pursuant to the Everest License, Everest will be solely responsible for the development and commercialization of licensed products in the Everest Territory. The Company agreed to use commercially reasonable efforts to manufacture drug product for clinical development, which will be paid by Everest at the cost to manufacture, as well as manufacture drug product for commercial supply, which will be paid by Everest at cost plus a reasonable margin. The Company has not yet entered into a commercial supply agreement with Everest, which would set the quantity and timing of commercial supply. Subsequent to July 28, 2020 and through December 31, 2020, the Company has not received any payments from Everest related to either royalties or clinical development and regulatory milestones.

F-23


 

 

11.  Acquisition of Tetraphase Pharmaceuticals, Inc.

On June 24, 2020, La Jolla entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tetraphase, a biopharmaceutical company focused on commercializing its novel tetracycline XERAVA to treat serious and life‑threatening infections, and TTP Merger Sub, Inc., a wholly owned subsidiary of La Jolla. On July 28, 2020, La Jolla completed its acquisition of Tetraphase for $43 million in upfront cash plus potential future cash payments of up to $16 million pursuant to contingent value rights (“CVRs”). The holders of the CVRs are entitled to receive potential future cash payments of up to $16 million in the aggregate upon the achievement of certain net sales of XERAVA in the U.S. as follows: (i) $2.5 million if 2021 XERAVA U.S. net sales are at least $20 million; (ii) $4.5 million if XERAVA U.S. net sales are at least $35 million during any calendar year ending on or prior to December 31, 2024; and (iii) $9 million if XERAVA U.S. net sales are at least $55 million during any calendar year ending on or prior to December 31, 2024. Following the acquisition, Tetraphase became a wholly owned subsidiary of La Jolla.

The acquisition of Tetraphase was accounted for as a business combination using the acquisition method pursuant to FASB ASC Topic 805. As the acquirer for accounting purposes, La Jolla has estimated the Purchase Price, assets acquired and liabilities assumed as of the acquisition date, with the excess of the Purchase Price over the fair value of net assets acquired recognized as goodwill. The estimated fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value.

The Purchase Price is comprised of the upfront cash of $43 million and the estimated fair value of potential future cash payments pursuant to the CVRs. The estimated fair value of assets acquired was $54.7 million, and the estimated fair value of liabilities assumed was $9.1 million.

The Purchase Price allocation as of the acquisition date is presented as follows (in thousands):

 

 

 

July 28,

 

 

 

2020

 

Cash

 

$

42,990

 

Fair value of CVRs

 

 

2,610

 

Total Purchase Price

 

$

45,600

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,778

 

Accounts receivable

 

 

1,187

 

Inventory

 

 

4,767

 

Prepaid expenses and other current assets

 

 

1,218

 

Property and equipment

 

 

58

 

Right-of-use lease assets

 

 

2,302

 

Restricted cash

 

 

699

 

Identifiable intangible assets

 

 

15,520

 

Goodwill

 

 

20,123

 

Accounts payable

 

 

(1,400

)

Accrued expenses

 

 

(2,979

)

Lease liabilities, current portion

 

 

(967

)

Lease liabilities, less current portion

 

 

(1,420

)

Other noncurrent liabilities

 

 

(2,286

)

Total Purchase Price

 

$

45,600

 

 

The estimated fair value of potential future cash payments pursuant to the CVRs are based on a Monte Carlo simulation are classified as Level 3 in the ASC Topic 820-10, three-tier fair value hierarchy.

 

CVRs are measured at fair value on a recurring basis. Subsequent to July 28, 2020 and through December 31, 2020, the Company recorded a $0.8 million gain as other income in the consolidated statements of operations resulting from the change in fair value of CVRs.

F-24


 

 

The Company recorded a $3.3 million fair value step-up adjustment to Tetraphase’s inventory as of the acquisition date. Raw material components and active pharmaceutical ingredients were recorded based on estimated replacement cost. Finished drug product was valued at estimated selling cost, adjusted for costs of selling effort and a reasonable profit allowance for such selling effort from the viewpoint of a market participant. This fair value step-up adjustment is recorded as cost of product sales when the inventory is sold to customers, $2.5 million of which was included in cost of product sales subsequent to July 28, 2020 and through December 31, 2020.

Identifiable intangible assets consist of certain technology and trade names acquired from Tetraphase, and include the value of the Harvard, Paratek and Everest Licenses (see Note 10). The acquired intangible assets have definite useful lives and are being amortized on a straight-line basis over an estimated useful life of 10 years.

Goodwill represents the excess of the Purchase Price over the fair value of the net assets acquired as of the acquisition date. Goodwill represents the value of the stronger platform to increase patient access to the Company’s commercial products and the operational synergies of the combined Company. Goodwill has an indefinite useful life and is not amortized. The goodwill is only deductible for tax purposes if the Company makes a U.S. Internal Revenue Code Section 338 (“Section 338”) election by April 15, 2021. The Company is currently evaluating whether to make a Section 338 election.

Subsequent to July 28, 2020 and through December 31, 2020, XERAVA U.S. net sales were $4.2 million and operating losses, excluding corporate overhead costs, attributable to Tetraphase were $10.3 million, inclusive of $0.6 million of intangible asset amortization included in selling, general and administrative expense and $2.5 million of the inventory fair value step-up adjustment included in cost of product sales.

Acquisition-related expenses, which were comprised primarily of legal fees, were $0.9 million for the year ended December 31, 2020, and were included in selling, general and administrative expense.

12.  Company-wide Realignments

On December 2, 2019, the Board of Directors of the Company approved a restructuring plan (the “2019 Realignment”) that reduced the Company’s headcount. The 2019 Realignment did not result in any reductions in headcount in the Company’s commercial organization supporting its products. For the year ended December 31, 2019, total expense was comprised of $5.8 million for one-time termination benefits to the affected employees, including severance and health care benefits, offset by a $0.9 million reversal of non-cash, share-based compensation expense related to forfeited, unvested equity awards. As of December 31, 2020, the Company had paid all cash severance and health benefits charges related to the 2019 Realignment.

On May 28, 2020, the Board of Directors of the Company approved a restructuring plan (the “2020 Realignment”) to align its organization with the Company’s sole focus on the commercialization of its products. The 2020 Realignment reduced the Company’s headcount. For the year ended December 31, 2020, total expense was comprised of $3.6 million for one-time termination benefits to the affected employees, including severance and health care benefits, offset by a $0.4 million reversal of non-cash, share-based compensation expense related to forfeited, unvested equity awards. As of December 31, 2020, the Company had paid $3.2 million of the $3.6 million cash severance and health care benefits charges, and the remaining $0.4 million of the cash severance and health care benefits charges were included in accrued payroll and related expenses. The Company expects to complete making substantially all of the payments related to the 2020 Realignment by the end of the first quarter of 2021.

F-25


 

 

In connection with the acquisition of Tetraphase, the Company incurred one-time charges related to a reduction in the combined Company’s headcount. For the year ended December 31, 2020, total expense was comprised of $3.1 million for one-time termination benefits to the affected employees, including severance and health care benefits. As of December 31, 2020, the Company had paid $2.1 million of the $3.1 million cash severance and health care benefits charges, and the remaining $1.0 million of the cash severance and health care benefits charges were included in accrued payroll and related expenses. The Company expects to complete making substantially all of the payments related to this headcount reduction by the end of the second quarter of 2021.

13. Defined Contribution Plan

La Jolla has a defined contribution plan (the “La Jolla 401(k) Plan”) covering substantially all of the Company’s employees. The La Jolla 401(k) Plan is a tax-qualified retirement saving plan, pursuant to which all employees are able to contribute the lesser of 50% of their eligible annual compensation (as defined) or the limit prescribed by the Internal Revenue Service (the “IRS”) to the La Jolla 401(k) Plan on a before-tax basis. The Company matches employee contributions to the La Jolla 401(k) Plan based on each participant’s contribution during the plan year, up to 3.5% of each participant’s annual compensation.

Tetraphase had a defined contribution plan (the “Tetraphase 401(k) Plan”) covering substantially all of the Tetraphase employees through December 31, 2020. The Tetraphase 401(k) Plan was a tax-qualified retirement saving plan, pursuant to which all employees were able to contribute the lesser of 92% of their eligible annual compensation (as defined) or the limit prescribed by the IRS to the Tetraphase 401(k) Plan on a before-tax basis. The Company matched employee contributions to the 401(k) Plan based on each participant’s contribution during the plan year, up to 3.5% of each participant’s annual compensation.  

For the years ended December 31, 2020 and 2019, the Company made matching contributions to the La Jolla and Tetraphase 401(k) Plans of $0.5 million and $0.9 million, respectively.

14. Income Taxes

For the years ended December 31, 2020 and 2019, the Company did not record a provision for income taxes, as the Company recorded a full valuation allowance against its deferred tax assets.

Deferred tax assets are as follows (in thousands):

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Net operating loss carryforwards

 

$

84,827

 

 

$

81,406

 

Research and development credits

 

 

24,179

 

 

 

24,011

 

Deferred royalty obligation

 

 

36,265

 

 

 

30,460

 

Share-based compensation expense

 

 

2,497

 

 

 

9,581

 

Depreciation and amortization expense

 

 

1,044

 

 

 

-

 

Lease liability

 

 

136

 

 

 

7,127

 

Other

 

 

436

 

 

 

1,263

 

Total gross deferred tax assets

 

 

149,384

 

 

 

153,848

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

-

 

 

 

(1,612

)

Right-of-use lease asset

 

 

(136

)

 

 

(3,775

)

Valuation allowance

 

 

(149,248

)

 

 

(148,461

)

Net deferred tax assets

 

$

-

 

 

$

-

 

 

F-26


 

 

The difference between income taxes computed using the U.S. federal income effective tax rate and the provision for income taxes is as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

Federal statutory rate

 

$

(8,278

)

 

$

(24,467

)

State tax benefit

 

 

(1,740

)

 

 

(3,825

)

Change in valuation allowance

 

 

787

 

 

 

102,583

 

Share-based compensation expense

 

 

9,072

 

 

 

7,532

 

State rate true-up

 

 

291

 

 

 

2,513

 

Establishment of NOLs and credits, post-Section 382 ownership change

 

 

-

 

 

 

(81,368

)

Research and development credits

 

 

(173

)

 

 

(2,599

)

Foreign rate differential

 

 

-

 

 

 

(62

)

Other permanent differences

 

 

41

 

 

 

(307

)

Provision for income taxes

 

$

-

 

 

$

-

 

 

As of December 31, 2020 and 2019, the Company established a full valuation allowance against its federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets.

Pursuant to Section 382 and 383 of the IRC, utilization of the Company’s federal net operating loss (“NOL”) carryforwards and research and development credit carryforwards may be subject to annual limitations in the event of any significant changes in its ownership structure. These annual limitations may result in the expiration of net operating loss carryforwards and research and development credit carryforwards, unless utilized. The federal and state net operating loss carryforwards and federal and state research and development carryforwards acquired in the Tetraphase transaction will likely be subject to annual limitations under IRC Section 382 and 383, and more likely than not, will expire unused.

As of December 31, 2020, the Company had federal and state net operating loss carryforwards of $815.4 million and $670.8 million, respectively. In addition, the Company had estimated federal and California research and development credit carryforwards of $20.6 million and $20.4 million, respectively. Federal net operating loss carryforwards of $567.0 million, state net operating loss carryforwards of $622.6 million, federal research and development credit carryforwards of $20.6 million and Massachusetts research and development credit carryforwards of $3.5 million will begin to expire in 2026, unless utilized. Federal net operating loss carryforwards of $248.4 million, state net operating loss carryforwards of $48.2 million and California research and development credit carryforwards of $16.9 million will carry forward indefinitely, unless utilized.

There were no unrecognized tax benefits as of December 31, 2020 and 2019. The Company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months.

The Company had no accrual for interest or penalties on the Company’s consolidated balance sheets as of December 31, 2020 or December 31, 2019, and has not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2020 and 2019.

The Company is subject to taxation in the U.S. and various state jurisdictions. The Company’s tax returns since inception are subject to examination by the U.S. and various state tax authorities. The Company is not currently undergoing a tax audit in any federal or state jurisdiction.

 

F-27


 

 

15. Subsequent Event

 

On January 12, 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase, entered into an exclusive licensing agreement (the “PAION License”) with PAION AG and its wholly owned subsidiary (collectively, “PAION”) to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland (the “PAION Territory”) whereby La Jolla is entitled to receive an upfront cash payment of $22.5 million plus potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments. As of the date this Annual Report on Form 10-K is filed with the SEC, La Jolla has received $19.1 million, which is the upfront cash payment of $22.5 million less a 15% refundable German tax withholding. The German tax withholding refund is expected to be received in the second quarter of 2021.

F-28

 

 

Exhibit 10.6

 

                      

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED BECAUSE THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.

 

 

DATED  JANUARY 12, 2021                   

 

 

 

 

 

 

 

 

 

(1)   PAION AG

(2)   PAION DEUTSCHLAND GMBH

(3)   LA JOLLA PHARMACEUTICAL COMPANY

(4)   La Jolla Pharmaceutical II B.V.

(5)   La Jolla Pharma, LLC

(6)   Tetraphase PHARMACEUTICALS, INC

(7)   Tetraphase PHARMACEUTICALS IRELAND LIMITED

 

 

 

 

 

 

 

 

 

 

 

 

Licence Agreement

 

 

 


1

 


 

 

THIS LICENCE AGREEMENT IS DATED AS OF 12 JANUARY 2021

 

 

PARTIES:

 

 

(1)

PAION AG, a company incorporated in Germany (company registration number DE5010352490) whose registered office is at Martinstrasse 10-12, 52062 Aachen, Germany (“Paion Parent”) and PAION DEUTSCHLAND GMBH, a company incorporated in Germany (company registration number HRB 10778) whose registered office is at Heussstraße 25, 52078 Aachen, Germany (“Paion” and, together with Paion Parent, the “Paion Parties”);

 

(2)

LA JOLLA PHARMACEUTICAL COMPANY, a company incorporated in the State of California (company registration number US330361285) with an office at 4747 Executive Drive, Suite 240, San Diego, CA 92121 United States of America (“La Jolla”); and

(3)

La Jolla Pharmaceutical II B.V., La Jolla Pharma, LLC, Tetraphase Pharmaceuticals, Inc., and Tetraphase Pharmaceuticals Ireland Limited (collectively, “Licensors”), wholly-owned subsidiaries of La Jolla, each with offices at 4747 Executive Drive, Suite 240, San Diego, CA 92121 United States of America.

 

 

WHEREAS:

 

(A)

The Licensors hold the Licensed Rights for the Licensed Products in the Territory. La Jolla and the Licensors wish to grant Paion a licence to the Licensed Rights in accordance with this Agreement.

 

(B)

Paion wishes to acquire the Licensed Rights from La Jolla and the Licensors in order for Paion and the Licensed Subsidiaries to manufacture, have manufactured, market, sell and distribute Licensed Products in the Territory in accordance with this Agreement.

 

 

THE AGREEMENT:

 

1.

Grant of licence

1.1.

The Licensors hereby grant to Paion and the wholly-owned subsidiaries of Paion Parent that hereby agree to be bound by this Agreement (collectively, “Licensed Subsidiaries”) during the Term an exclusive, non-transferable (except as provided in Clause 16) licence under the Licensed Rights to manufacture, have manufactured, sell, offer to sell, import, conduct clinical trials and studies and obtain regulatory approvals, market, distribute, supply, offer for sale and use the Licensed Products, in each case, solely in the Territory. Paion agrees that it has no rights under the Licensed Rights outside the Territory; provided that, if Paion or any Licensed Subsidiary desires to manufacture or have manufactured Licensed Products or conduct clinical trials or studies outside the Territory, upon Paion’s written request and subject to Licensors’ approval, which approval shall not be unreasonably withheld, conditioned, or delayed, the Licensors shall grant to Paion or the relevant Licensed Subsidiary the requested right to manufacture or have manufactured Licensed Products or conduct clinical trials or studies outside the Territory to the extent Licensors may do so without breaching any obligation or triggering a payment obligation under any agreement with a Third Party. Where reasonably requested by Paion or any Licensed Subsidiary, La Jolla and Licensors shall use their good faith efforts to (a) request consent from such Third Parties and (b) secure amendments to any agreements with such Third Parties to the extent necessary for Paion or any Licensed Subsidiary to manufacture or have manufactured Licensed Products or conduct clinical trials or studies outside the Territory without breaching any obligations or triggering payment obligations under such agreements with Third Parties.

1.2.

Paion shall not grant sub-licences under this Agreement in any country in the Paion Markets. Paion and Licensed Subsidiaries may grant sub-licences under this Agreement solely in the Sub-licensed Markets, provided that:

2

 


 

 

 

1.2.1

subject to Clause 1.2.2, the sub-licensees are subject to the obligations which are equivalent to the obligations on Paion and Licensed Subsidiaries under this Agreement;

 

1.2.2

the sub-licensees (or their sub-licensees) shall not be permitted to grant any sub-licences with respect to any Licensed Product without the prior written consent of Licensors, which the Licensors shall not unreasonably delay, condition or withhold;

 

1.2.3

the Licensed Know-how and the Confidential Information of the Licensors is only disclosed to such sub-licensees to the extent strictly necessary and under written obligations of confidence which are equivalent to the obligations on Paion and Licensed Subsidiaries under this Agreement; and

 

1.2.4

Paion and Licensed Subsidiaries may, at their discretion, terminate such sub-licences at any time, and promptly notify Licensors of such termination.

1.3

All Intellectual Property Rights in any Improvements made during the Term by or on behalf of La Jolla and each of the Licensors shall be the exclusive property of La Jolla and/or that Licensor on creation ("Licensors Improvements"). Licensors Improvements shall be deemed to be Licensed Know-how licensed to Paion and its Licensed Subsidiaries at no additional costs, fees or royalties during the Term pursuant to Clause 1.1. Licensors shall provide a summary of any Licensors Improvements within thirty (30) days after the creation of such Licensors Improvements and shall promptly provide all information reasonably requested by Paion regarding such Licensors Improvements.

1.4

All Intellectual Property Rights in any Improvements made during the Term by or on behalf of Paion or its Licensed Subsidiaries shall be the exclusive property of Paion on creation ("Paion Improvements"). Paion hereby grants, and agrees to cause its Licensed Subsidiaries to grant, to each Licensor and its Affiliates during the Term a non-exclusive, royalty-free, fully paid-up license under all Intellectual Property Rights in any Paion Improvements to manufacture, have manufactured, sell, offer to sell, import, conduct clinical trials and studies and obtain regulatory approvals, market, distribute, supply, offer for sale and use the Licensed Products, in each case, solely outside the Territory. Licensors may grant sub-licences under this Clause 1.4 provided the sub-licensees shall not grant any sub-licences under any Intellectual Property Rights in any Paion Improvements without the prior written consent of Paion, which Paion shall not unreasonably delay, condition or withhold. Paion shall provide a summary of any Pion Improvement within thirty (30) days after the creation of such Paion Improvement and shall promptly provide all information reasonably requested by Licensors regarding such Paion Improvement.    

1.5

Paion shall have the option at its own cost, to record the licence granted to it under this Clause 1 in the relevant registries in the Territory. Licensors shall provide reasonable assistance to enable Paion and its Licensed Subsidiaries to make such submission under this Clause 1.5.

2.

Disclosure of TECHNICAL INFORMATION

2.1.

La Jolla and the Licensors shall provide to Paion and Licensed Subsidiaries all technical information in its and their possession and control relating to the Licensed Products, including without limitation Licensed Know-how and all Programme Data developed by or on behalf of Licensors, that is necessary or useful for Paion and Licensed Subsidiaries to use and otherwise exploit the Licensed Rights in accordance with this Agreement; provided that, in the case of any such technical information (including Know-How and Programme Data) that is owned by a Third Party, Licensors shall be obligated to provide such technical information only to the extent that the provision of such technical information does not breach any obligation or trigger a payment obligation under any agreement with a Third Party. Where reasonably requested by Paion or any Licensed Subsidiary, La Jolla and Licensors shall use good faith efforts to (a) request consent from such Third Parties and (b) secure amendments to any agreements with such Third Parties to the extent necessary to provide Paion and Licensed Subsidiaries all technical information (including Know-how and Programme Data) owned by such Third Parties that is necessary or useful for Paion and Licensed Subsidiaries to use and otherwise exploit the Licensed Rights in accordance with this Agreement, without breaching any obligations or triggering payment obligations under such agreements with Third Parties. La Jolla and the Licensors shall make such acknowledgements to Third Parties as Paion may reasonably

3

 


 

 

request stating that Paion and its Affiliates are entitled to make exclusive use of the Licensed Know-how and Programme Data for the purpose of exercising their rights in accordance with this Agreement. La Jolla and the Licensors shall provide the technical and other information described in Clause 2.2 to Paion within thirty (30) days after the Commencement Date.  

2.2.

Such technical and other information to be provided by La Jolla and Licensors to Paion pursuant to Clause 2.1 shall include, without limitation, the latest versions of the following documents in La Jolla's, Licensors’ and/or their Affiliates' possession or control to the extent relating to the Licensed Products:

 

2.2.1.

Investigational new drug applications to any regulatory authorities;

 

2.2.2.

Phase I and II clinical reports;

 

2.2.3.

Phase III protocol and related documents including case report forms and patient informed consent forms;

 

2.2.4.

Investigator brochures;

 

2.2.5.

Phase III clinical study reports;

 

2.2.6.

New Drug Applications;

 

2.2.7.

Supplementary New Drug Applications;

 

2.2.8.

Label amendments along with clinical and regulatory submission support;

 

2.2.9.

Stability reports; and

 

2.2.10.

Value dossiers.

2.3.

La Jolla and the Licensors shall, at no additional cost, disclose to Paion and Licensed Subsidiaries any Know-how and/or Programme Data in La Jolla's, Licensors and/or their Affiliates' possession or control that is necessary or useful for the exploitation of the Licensed Rights in the Territory and that La Jolla, Licensors and/or their Affiliates may develop, have developed or acquire during the Term, including without limitation all such Know-how and/or Programme Data which it may obtain from any of its licensees outside the Territory (unless prevented from so doing by the terms of its agreement with any licensee) and that is necessary or useful for Paion and Licensed Subsidiaries to manufacture, have manufactured, sell, offer to sell, import, conduct clinical trials and studies and obtain regulatory approvals, market, distribute, supplying, offer for sale and use the Licensed Products under this Agreement, within thirty (30) days of developing or acquiring such Know-how and/or Programme Data, all of the foregoing of which will be deemed to be included in the Licensed Rights that are granted to Paion and Licensed Subsidiaries in accordance with this Agreement (in the case of Know-how and/or Programme Data obtained from any of La Jolla and/or Licensors' licensees outside the Territory, subject any limitations on the use thereof imposed under any agreements with such licensees). Where reasonably requested by Paion or any Licensed Subsidiary, La Jolla and Licensors shall use good faith to (a) seek consent from La Jolla's and/or Licensors' licensees outside the Territory and (b) secure amendments to any agreements with La Jolla's and/or Licensors' licensees outside the Territory to the extent necessary to provide Paion and Licensed Subsidiaries all such Know-how and/or Programme Data that is obtained from any of La Jolla and/or Licensors' licensees outside the Territory and which is necessary or useful for Paion and Licensed Subsidiaries to manufacture, have manufactured, sell, offer to sell, import, conduct clinical trials and studies and obtain regulatory approvals, market, distribute, supplying, offer for sale and use the Licensed Products under this Agreement.

2.4.

Subject to Clause 10, Paion and Licensed Subsidiaries shall have the right (in the case of Know-how and/or Programme Data obtained from any of La Jolla and/or Licensors' licensees outside the Territory, subject to Clause 2.3 and any limitations on the use thereof imposed under any agreements with such licensees):

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2.4.1

to use the Licensed Know-how and Programme Data disclosed to it pursuant to Clauses 2.1, 2.2 and 2.3 for the purposes contemplated in this Agreement and subject to the terms hereof; and

 

2.4.2

to disclose Licensed Know-how and Programme Data to its sub-licensees and sub-contractors for their use for the purposes contemplated in this Agreement and subject to the terms hereof.

2.5

Paion shall be the sole owner of all Programme Data and other technical information which Paion may develop or acquire in relation to the Licensed Products. Paion shall disclose such Programme Data and other technical information to Licensors within thirty (30) days of developing or acquiring such Programme Data and other technical information. Paion hereby grants, and cause its Licensed Subsidiaries to grant, to each Licensor and its Affiliates during the Term a non-exclusive, royalty-free, fully paid-up license to use such Programme Data and other technical information to manufacture, have manufactured, sell, offer to sell, import, conduct clinical trials and studies and obtain regulatory approvals, market, distribute, supply, offer for sale and use the Licensed Products, in each case, solely outside the Territory, subject to Clause 10.

3.

LICENSED TRADEMARKS

3.1.

La Jolla and the Licensors shall, at their own cost and expense, maintain and renew the registrations of the Licensed Trademarks in the European Union or member state countries thereof, including payment of all related fees.

3.2.

Licensors may, at their option, file any additional trademark applications featuring the Licensed Trademarks in the Territory. If Licensors do not file an application to register any trademark registration in the European Union or member state countries thereof featuring the Licensed Trademarks which, in the reasonable opinion of Paion, warrants registration, Licensors shall at their own cost and expense, upon written request of Paion or its Licensed Subsidiaries, apply for such trademark protection as requested by Paion or its Licensed Subsidiaries provided that the ownership and control of any such additional trademarks remains with Licensors. Any new trademarks featuring the Licensed Trademarks that Licensors register in the European Union or any member state countries thereof shall be deemed to be Licensed Trademarks under this Agreement.  

3.3.

Paion and its Licensed Subsidiaries shall not register or make any application to register any trade mark, design or other registered right which incorporates any Licensed Trademark or anything confusingly similar to any Licensed Trademark or otherwise infringes or dilutes in a material way any Licensed Trademark.

3.4.

Paion's and its Licensed Subsidiaries’ right to use the Licensed Trademarks shall be only in conformance with any trademarks usage guidelines of Licensors that may be delivered to Paion from time to time, which guidelines shall be reasonable and shall not be inconsistent with the scope of the license granted under this Agreement.

3.5.

Paion hereby acknowledges and recognizes Licensors' exclusive worldwide ownership of the Licensed Trademarks and agrees not to take any action inconsistent with such ownership.  Paion acknowledges that its Licensed Subsidiaries’ use of the Licensed Trademarks pursuant to this Agreement and any goodwill established thereby shall inure to the sole benefit of Licensors.  Paion agrees that nothing in this Agreement shall give Paion or any of its Licensed Subsidiaries any right, title or interest in the Licensed Trademarks other than the right to use the Licensed Trademarks in accordance with this Agreement.  Paion further agree that it and its Affiliates will not attack Licensors’ ownership of the Licensed Trademarks, nor shall Paion or any of its Affiliates assist or aid others in attacking Licensors’ ownership of the Licensed Trademarks.  Notwithstanding anything in this Agreement to the contrary, if, by virtue of Paion’s or any Licensed Subsidiary’s use of the Licensed Trademarks, Paion acquires any equity, title or other rights in or to the Licensed Trademarks, Paion or such License Subsidiary, as applicable, shall assign and transfer same to Licensors.

3.6.

Paion shall reasonably assist Licensors in policing the use of the Licensed Trademarks and shall cooperate with Licensors in protecting the Licensed Trademarks.  Such cooperation by Paion shall

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be at the sole expense of Licensors.  Paion shall notify Licensors promptly of any infringement of the Licensed Trademarks that comes to its attention or its Licensed Subsidiaries.

3.7.

Paion and its Affiliates shall not knowingly take or permit to be taken any actions that would diminish in a material way the goodwill or reputation associated with the Licensed Trademarks.

4.

MARKETING AUTHORISATIONS

4.1.

La Jolla and the Licensors shall initiate the transfer of all Marketing Authorisations for the Licensed Products in the Territory with the Regulatory Authority [***] in order for Paion (or its Licensed Subsidiaries) to be appointed as holders of all Marketing Authorisations for the Licensed Products in the Territory.

4.2.

La Jolla and the Licensors shall reasonably assist Paion and Licensed Subsidiaries, upon reasonable request, in connection with any queries made by Regulatory Authority during the transfer of the Marketing Authorisations or following the transfer the Marketing Authorisations. La Jolla and the Licensors shall give reasonable support to the application, transfer and maintenance of the Marketing Authorisations in the Territory, including but not limited to providing additional documents requested by Regulatory Authority. La Jolla and the Licensors shall reasonably assist Paion in answering any deficiency letters from the Regulatory Authority in the Territory regarding the Licensed Products, as reasonably requested by Paion or Licensed Subsidiaries. Where the Regulatory Authority may require a letter of authorisation or other similar document that La Jolla and/or Licensors are required to provide, La Jolla and the Licensors shall provide these promptly after being requested to do so.

4.3.

La Jolla and the Licensors shall reasonably assist Paion and Licensed Subsidiaries, upon reasonable request, in connection with any queries made by Regulatory Authority during the application for any new Marketing Authorisations in the Territory. La Jolla and the Licensors shall give reasonable support to the application and maintenance of the new Marketing Authorisations in the Territory. La Jolla and the Licensors shall reasonably assist Paion in answering any deficiency letters from the Regulatory Authority in the Territory regarding the Licensed Products, as reasonably requested by Paion or Licensed Subsidiaries. Where the Regulatory Authority may require a letter of authorisation or other similar document that La Jolla and/or Licensors are required to provide, La Jolla and the Licensors shall provide these promptly after being requested to do so.

4.4.

All reasonable costs and fees associated with La Jolla and Licensors complying with their obligations under Clauses 4.1, 4.2 and 4.3 shall be shared by the Parties, with the Parties consulting on how such reasonable costs and fees will be incurred and shared.

5.

SUPPLY OF LICENSED PRODUCTS

5.1.

The Parties shall use commercially reasonable efforts to negotiate and enter into a separate Supply Agreement [***]; such Supply Agreement to incorporate the Supply Terms in Schedule 5.  

6.

OBLIGATIONS OF PAION

6.1.

Paion and its Licensed Subsidiaries shall (and shall ensure that its sub-licensees), in developing, using, importing, manufacturing, selling and supplying the Licensed Products, comply with all applicable local, state, and international laws and regulations.

6.2.

Paion and its Licensed Subsidiaries shall not do or omit to do anything which will:

 

6.2.1.

diminish the rights of Licensors in the Licensed Rights;

 

6.2.2.

impair any registration (or application for registration) of the Licensed Patents; or

 

6.2.3.

prejudice the validity of the Licensed Patents.

6.3.

Paion shall use Commercially Reasonable Efforts:

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6.3.1.

to execute and fund all clinical trials necessary to obtain, and to obtain and keep in good standing, all Marketing Authorizations for the Licensed Products in the Territory;

 

6.3.2.

to coordinate and control the regulatory strategy and interactions with Regulatory Authorities for the Products in the Territory; and

 

6.3.3.

to commercialize License Products in the Territory, including to commence commercial sale of  Giapreza in the Territory by no later than August 23, 2022 and to commence commercial sale of XERAVA in the Territory by no later than September 20, 2021.

6.4.

Paion will have the sole right and responsibility for planning, funding and implementing commercialization activities for the Product in the Territory.

6.5.

Paion will be responsible for all costs related to commercialization of the Product, including sales, advertising and promotion in the Territory.

6.6.

Paion will be responsible for all pricing and reimbursement discussions and shall be free to set the final price independent of Licensors; provided that, Parties will discuss pricing of Licensed Products as part of the Joint Steering Committee and Paion will notify Licensors of setting of prices and any pricing changes for any Licensed Products made by Paion from time to time.

6.7.

Paion shall be responsible for supply of Licensed Products in the Territory. Paion shall ensure that supply of the Licensed Products in the Territory comply with applicable laws.  

6.8.

Paion shall be the holder of, and own, each Marketing Authorisation obtained by Paion or transferred to Paion in the Territory.

6.9.

Paion shall, either directly, through its Licensed Subsidiaries or sub-licensees, market the Licensed Products in the Territory under the applicable Licensed Trademark in accordance with the Marketing Authorisations. The obligations under this Clause 6.9 shall not apply to the extent the applicable Licensed Trademark is no longer valid and enforceable in the Territory. In such circumstance, Paion, the Licensed Subsidiaries and/or any sub-licensees may, in consultation with La Jolla and Licensors, market the Licensed Products under the International Nonproprietary Names of the Licensed Products or other trademarks in the countries in the Territory where the applicable Licensed Trademark is no longer valid and enforceable.

7.

Governance

7.1.

Joint Steering Committee.  

 

7.1.1.

[***], the Parties will establish a joint steering committee (the “Joint Steering Committee” or the “JSC”), composed of two (2) members of each Party, to oversee and guide the direction of the commercialization of Licensed Products in the Territory under this Agreement. The JSC shall act as a joint steering and decision-making body for the Partnering Program.  The JSC in particular shall:

 

(a)

oversee the conduct of the Partnering Program and corresponding budget. discuss marketing ideas & brand information;

 

(b)

review, discuss and approve the Partnering Program and corresponding budget and any revisions;

 

(c)

discuss any ongoing development work by the Parties and any outcomes;

 

(d)

foster a collaborative relationship between the Parties; and

 

(e)

perform such other functions as appropriate to further the purposes of the Partnering Program, as expressly set forth in this Agreement or allocated to it by the Parties’ written agreement.

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7.2.

JSC Membership and Meetings.

 

7.2.1.

JSC Members. Each JSC representative shall have appropriate knowledge and expertise and sufficient seniority within the applicable Party to make decisions arising within the scope of the JSC’s responsibilities.  Each Party may replace its representatives on the JSC on written notice to the other Party.  Paion shall appoint the chairperson of the JSC.  The chairperson shall prepare and circulate agendas to JSC members at least [***] days before each JSC meeting and shall direct the preparation of reasonably detailed minutes for each JSC meeting, which shall be approved by the chairperson and circulated to JSC members within thirty (30) days after such meeting.

 

7.2.2.

Meetings.  The JSC shall hold meetings at such times as it elects to do so, but in no event less frequently than [***] by telephone or video conference, unless otherwise agreed by the Parties.  The first JSC meeting shall be held within thirty (30) days of the Commencement Date. Each Party shall be responsible for all of its own expenses of participating in any JSC meeting.  No action taken at any meeting of the JSC during the Partnering Program shall be effective unless at least one (1) representative of each Party is participating.  In addition, either Party may request that a special ad hoc meeting of the JSC be convened for the purpose of resolving disputes or for the purpose of reviewing or making decisions pertaining to material subject-matter, at such time as may be mutually agreed by the Parties.

 

7.2.3.

Non-Member Attendance. Each Party may from time to time invite a reasonable number of participants, in addition to its representatives, to attend the JSC meetings in a non‑voting capacity; provided that if either Party intends to have any Third Party (including any consultant) attend such a meeting, such Party shall provide reasonable prior written notice to the other Party and obtain the other Party’s approval for such Third Party to attend such meeting, which approval shall not be unreasonably withheld, conditioned, or delayed.  Such Party shall ensure that such Third Party is bound by written confidentiality and non-use obligations consistent with the terms of this Agreement.

7.3.

Decision-Making.

 

7.3.1.

General.  During the performance of the Partnering Program, the Parties shall use good faith efforts to reach all JSC decisions by consensus, with each Party’s representatives collectively having one (1) vote. If after reasonable discussion and good faith consideration of each Party’s view on a particular matter, the representatives of the Parties cannot reach an agreement as to such matter within fifteen (15) business days, then either Party at any time may refer such issue to the executive officers in accordance with Clause 17.8 for resolution.

 

7.3.2.

Limitations on Authority. The JSC shall have only such powers as are expressly assigned to it in this Agreement, and such powers shall be subject to the terms and conditions of this Agreement.  Without limiting the generality of the foregoing, the JSC shall not have the power to amend, interpret, or waive compliance with this Agreement, and no JSC decision may be in contravention of any terms and conditions of this Agreement.

 

7.3.3.

Discontinuation of the JSC.  The activities to be performed by the JSC shall solely relate to governance under this Agreement. The JSC shall continue to exist until the first to occur of:  (a) the Parties mutually agree to dissolve the JSC or (b) the completion of the Partnering Program under this Agreement.  Upon the first to occur of the foregoing (a) or (b), the JSC shall automatically dissolve and, thereafter, each Party shall designate, to the extent necessary, a contact person for the exchange of information under this Agreement, and decisions which would previously have been made by the JSC, if any, shall be decisions as between the Parties, subject to the other terms and conditions of this Agreement.

8.

LICENSING FEE, MILESTONE FEES & ROYALTIES

8.1.

In full consideration of the Licensed Rights and transfer of Marketing Authorisations in accordance

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with Clause 3, the Paion Parties shall jointly be liable to pay to the Licensors:

 

8.1.1.

the Licensing Fee;

 

8.1.2.

the Milestone Fees; and

 

8.1.3.

the Royalties.

The Parties acknowledge that payments made by either of the Paion Parties and/or Licensed Subsidiaries in the full amount required under this Clause 8 and received by La Jolla and/or the Licensors shall be in full and final satisfaction of the Paion Parties' and/or Licensed Subsidiaries' obligations under this Clause 8 with respect to such payments, and the Paion Parties and Licensed Subsidiaries shall have no further obligations to La Jolla and/or the Licensors (or any of their licensors) under this Clause 8 with respect to such payments.

Licensing Fee

8.2.

Following the execution and delivery of this Agreement by each of the Parties, La Jolla or the Licensors shall invoice Paion for the amount of the Licensing Fee and Paion shall, pending receipt of such invoice, pay the amount of the Licensing Fee within 30 days of the date of execution and delivery of this Agreement by each of the Parties. The Parties agree and acknowledge that [***] of the Licensing Fee is attributable to the grant by La Jolla Pharma, LLC of the license under the Licensed Rights with respect to Giapreza and [***] of the Licensing Fee is attributable to the grant by Tetraphase Pharmaceuticals Ireland Limited of the license under the Licensed Rights with respect to XERAVA. Notwithstanding any provision contained in this Agreement to the contrary but subject to Clause 8.1, all amounts owing under Clause 8.1, to the extent attributable to Giapreza, shall be paid directly to La Jolla Pharma, LLC in accordance with the wire transfer instructions provided pursuant to Clause 8.10.3 (and, accordingly, USD [***] of the Licensing Fee shall be paid directly to La Jolla Pharma, LLC and [***] to Tetraphase Pharmaceuticals, Inc.).

Milestone Fees

8.3.

Subject to Clause 8.5, promptly upon achievement of each Milestone, Paion shall notify La Jolla of the achievement of each Milestone and the amount of Milestone Fees payable. La Jolla or the Licensors shall invoice Paion for the amount of Milestone Fees payable and the Paion Parties shall pay the amount of such Milestone Fees within forty-five (45) days of achievement of the corresponding Milestone.

Royalties

8.4.

Subject to Clause 8.5, the Paion Parties shall pay to the Licensors the following Royalties:

 

8.4.1.

15% of Annual Aggregate Net Sales from the sale of XERAVA in the Paion Markets, so long as a Valid Claim of a Licensed Patent would, in the absence of a license, be infringed from the use, making, sale, offer for sale or importation of XERAVA in the Territory;

 

8.4.2.

35% of Annual Aggregate Net Receipts with respect to sub-licences granted in Sub-licensed Markets relating to the sale of XERAVA, so long as a Valid Claim of a Licensed Patent would, in the absence of a license, be infringed from the use, making, sale, offer for sale or importation of XERAVA in the Territory;

 

8.4.3.

18% of Annual Aggregate Net Sales from the sale of Giapreza in the Paion Markets prior to 31 December 2021 and so long as a Valid Claim of a Licensed Patent would, in the absence of a license, be infringed from the use, making, sale, offer for sale or importation of Giapreza in the Territory;

 

8.4.4.

20% of Annual Aggregate Net Sales from the sale of Giapreza in the Paion Markets from 1 January 2022 until 31 December 2023 and so long as a Valid Claim of a Licensed Patent would, in the absence of a license, be infringed from the use, making, sale, offer for sale or importation of Giapreza in the Territory;

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8.4.5.

24% of Annual Aggregate Net Sales from the sale of Giapreza in the Paion Markets after 31 December 2023 and so long as a Valid Claim of a Licensed Patent would, in the absence of a license, be infringed from the use, making, sale, offer for sale or importation of Giapreza in the Territory; and

 

8.4.6.

35% of Annual Aggregate Net Receipts with respect to sub-licences granted in Sub-licensed Markets relating to the sale of Giapreza, so long as a Valid Claim of a Licensed Patent would, in the absence of a license, be infringed from the use, making, sale, offer for sale or importation of Giapreza in the Territory.

Payments

8.5.

The Royalties and Milestone Fees payable pursuant to Clause 8.3 and 8.4, shall be subject to the following:

 

8.5.1.

in respect of any Licenced Products:

 

(a)

only a single Royalty shall be payable for any XERAVA products; and

 

(b)

only a single Royalty shall be payable for any Giapreza products;

 

8.5.2.

each XERAVA Milestone Fee is payable only once by the Paion Parties upon achievement of each XERAVA Milestone. Each XERAVA Milestone Fee is a one-time non-refundable payment that is satisfied in full when the XERAVA Milestone is achieved and the Paion Parties have made payment of the applicable XERAVA Milestone Fee to Licensors; and

 

8.5.3.

each Giapreza Milestone Fee is payable only once by the Paion Parties upon achievement of each Giapreza Milestone. Each Giapreza Milestone Fee is a one-time non-refundable payment that is satisfied in full when the Giapreza Milestone is achieved and Paion has made payment of the applicable Giapreza Milestone Fee to La Jolla Pharma, LLC.

Payment Caps

8.6.

If in any Year, the aggregate amount of Milestone Fees and Royalties paid and payable by the Paion Parties for XERAVA exceeds [***] of Annual Aggregate Net Sales and Annual Aggregate Net Receipts for XERAVA in the Territory for a given Year during the Term, then the Paion Parties shall not pay any amount of Milestone Fees and Royalties for XERAVA in excess of [***] of Annual Aggregate Net Sales and Annual Aggregate Net Receipts for XERAVA in that Year (the "Payment Cap"). At the end of each Year, Paion shall notify La Jolla in writing if the Payment Cap applies and the following shall apply:

 

8.6.1.

La Jolla shall refund payments of Milestone Fees and Royalties paid by the Paion Parties for XERAVA in that Year that exceed the Payment Cap within thirty (30) days after receipt of the notification from Paion; and

 

8.6.2.

Milestone Fees and Royalties for XERAVA in that Year that exceed the Payment Cap for that Year shall be carried over and shall be due and payable at the time that the applicable percentage of Annual Aggregate Net Sales and Annual Aggregate Net Receipts is due for the immediately following year; provided that such Milestone Fees and Royalties for XERAVA that exceed the Payment Cap in the previous Year shall be included in the calculation for the Payment Cap in immediately following Year. For instance, if the value of Milestone Fees and Royalties for XERAVA exceed the Payment Cap for Year 1 by USD50,000, then that USD50,000 will be carried over to Year 2. If the value of Milestone Fees and Royalties for XERAVA (including the USD50,000 carried over from Year 1) exceed the Payment Cap for Year 2 by USD80,000, then that USD80,000 will be carried over to Year 3 and so on.

8.7.

After the commencement of sales of Generic Products in a given country in the Territory, the Parties will negotiate in good faith a reduction in the Royalties payable hereunder in respect of Net Sales of the relevant Licensed Product in such country, which reduction would become effective upon the

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level of aggregate sales of all such Generic Products in such country achieving a mutually agreed percentage of aggregate sales of such Generic Products and such Licensed Product in such country; provided that, any such reduction would be subject to La Jolla obtaining consents or amendments from George Washington University,  Harvard University and Healthcare Royalty Management, LLC with respect to the GWU License, the Harvard License and the Royalty Interest Agreement, respectively, which La Jolla agrees to obtain in good faith in such event.

8.8.

Royalties and other sums payable under this Agreement are exclusive of VAT (or similar tax).  If the Paion Parties are required by law to make a deduction or withholding from Royalties or such sums, the Paion Parties shall, within ten (10) Business Days of making the deduction or withholding, provide a statement in writing showing the gross amount of the payment, the amount of the sum deducted and the actual amount paid.

8.9.

The Paion Parties shall pay Royalties on a Quarterly Period basis, and Royalties attributable to Net Sales and Net Receipts during the Quarterly Period shall become due and payable within thirty (30) days of the end of such Quarterly Period.  At the same time as payment of the Royalties set out in this Clause 8 falls due, Paion shall submit or cause to be submitted to Licensors a statement in writing recording the calculation of such Royalties payable and in particular provide the following on a Licensed Product by Licensed Product basis:

 

8.9.1

the Quarterly Period for which the Royalties were calculated;

 

8.9.2

the Net Sales (including an itemized listing of applicable deductions) and Net Receipts (by sub-licensee) during the Quarterly Period;

 

8.9.3

the amount of Royalties due and payable; and

 

8.9.4

the amount of any withholding or other taxes or duties deductible or due to be deducted from the amount of Royalties due and payable.

8.10

Payment of invoices by the Paion Parties shall be:

 

8.10.1

within thirty (30) days following the date of receipt of the relevant invoice;

 

8.10.2

exclusive of VAT which shall also be payable by Paion (if applicable); and

 

8.10.3

by electronic funds transfer to the bank accounts designated in writing by La Jolla or Licensors (which will include an account into which payments in respect of Giapreza will be made to La Jolla Pharma, LLC), or on such other terms agreed upon in writing between La Jolla or Licensors and Paion from time to time.

8.11

All payments by the Paion Parties under this Agreement shall be made in USD or such other currency as the Parties may agree from time to time.

8.12

Paion shall during the Term of this Agreement keep accurate and complete books of account containing all necessary data for the calculation and/or confirmation of payments due under this Agreement, which books of account shall be retained by Paion for a minimum of three years following the Year to which they pertain; provided that books and records relating to the sale of XERAVA shall in all events be maintained until the expiration of five years from the conclusion of the Quarterly Period to which they relate. Paion shall obtain from any sub-licensee in the Sub-licensed Markets inspection rights comparable with those set forth in this Clause 8.12 that it agrees to exercise from time to time upon the request of Licensors. The records and books of account referred to in this Clause 8.12 shall, on La Jolla giving reasonable prior written notice of no less than five (5) business days, be open during normal working hours on any business day for inspection by La Jolla and/or a public accounting firm of La Jolla’s selection, not more often than once each Year, excluding any inspection that uncovers an underpayment of more than [***]% of the amount due hereunder for the audited period; provided such books and records that relate to the sale of XERAVA also shall be subject to inspection by Harvard University pursuant to the terms of Section 7.3 of the Harvard License and the books and records that relate to the sale of Giapreza also shall be subject to inspection by George Washington University pursuant to the terms of Section 5.4 of the

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GWU License and the results of any inspection may be shared with Healthcare Royalty Management, LLC pursuant to Section 8.03(d) of the Revenue Interest Agreement. In the event that the inspection reveals an undisputed underpayment or overpayment by Paion, the underpaid or overpaid amount will be paid by the applicable Party promptly. La Jolla will pay for such inspections; provided, that in the event of an underpayment of more than [***]% of the total payments due hereunder for the period covered by the inspection is discovered as a result of any such inspection, then the fees and expenses incurred by La Jolla in connection with such inspection will be paid or reimbursed by Paion.

8.13

Where sums due are not paid in full by the due date, La Jolla may charge interest on such sums at a rate per annum equal for each day in which an amount is overdue to the lesser of (i) 10.0% and (ii) the maximum amount of interest permitted under applicable law. Interest shall apply from the due date for payment until actual payment in full, whether before or after judgment.

8.14

If, at any time, a Party considers that the other Party has failed to comply with its obligations under Clause 8, the Party may refer to an independent expert the following questions:

8.14.1whether the Party has met its obligations under Clause 8; and, if not,

 

8.14.2

what actions the expert proposes the Party should take in order to meet its obligations under Clause 8.

8.15

The independent expert shall be appointed in accordance with the Schedule 1. If the independent expert determines that a Party has failed to comply with its obligations under Clause 8, and if the Party fails to take the remedial actions proposed by the independent expert pursuant to Clause 8.14.2 within three (3) months of the expert rendering his or her decision in accordance with Schedule 1, the Party referring the matter to the expert shall be entitled, by giving, at any time within three (3) months after the end of that three (3) month period not less than one (1) month's written notice, to terminate this Agreement. Nothing in this Clause 8.15 shall limit or otherwise affect the exercise of any other right or remedy of a Party under this Agreement or applicable law.  

9.

PROSECUTION, MAINTENANCE AND PROTECTION OF THE LICENSED RIGHTS

9.1

Licensors shall be responsible for filing, prosecuting and maintaining the Licensed Patents. For clarity, any new patent application (and any patent granted thereon) owned by La Jolla or either Licensor (or any other wholly-owned subsidiary of La Jolla) that is (a) related to the Licensed Products or (b) is necessary or useful for Paion and Licensed Subsidiaries to use and otherwise exploit the Licensed Products in accordance with this Agreement, made during the Term by or on behalf of La Jolla and each of the Licensors shall be deemed to be Licensed Patents. La Jolla and the Licensors shall provide Paion, in the case of Licensed Patents that are licensed to Licensors under the GWU License or Harvard License, to the extent Licensors control the prosecution thereof, with drafts of all proposed material filings and correspondences to patent authorities in the Territory and reasonably consider Paion’s input and comment thereto that are timely provided by Paion. Paion shall reimburse Licensors all reasonable external costs actually invoiced by vendors and paid by Licensors for the prosecution and maintenance of the Licensed Patents in the Territory (all being "Patent Fees"). La Jolla shall invoice Paion for such Patent Fees annually and Paion shall pay such invoice within thirty (30) days of receipt in accordance with this Agreement.

9.2

Paion shall be entitled to request that Licensors, at Paion’s cost, file in the name of a Licensor for patents in additional jurisdictions within the Territory and Licensors' agreement to such request shall not be unreasonably withheld, conditioned or delayed.

9.3

In the event that Licensors decide not to pursue, maintain and/or abandon any of the Licensed Patents owned by Licensors, La Jolla will cause Licensors to provide written notice thereof to Paion following such decision.  Upon request of Paion, La Jolla agrees that the relevant Licensor will assign to Paion all its rights, title and interest in the Licensed Patents owned by such Licensor and that such Licensor has determined to discontinue/abandon at no cost to Paion who may continue with such applications and/or registrations in its own name and at its sole cost; provided that any assignment of any such discontinued/abandoned Licensed Patents to Paion will be subject to an unrestricted retained royalty-free, irrevocable, sublicensable, transferable non-exclusive license

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under such discontinued/abandoned Licensed Patents (and any patent issuing thereon), subject to Paion’s exclusive rights with respect to the Licensed Products in the Territory.

9.4

In addition to the obligations of confidence and disclosure restrictions in Clause 10, the Parties acknowledge and agree the Licensed Know-how is highly confidential and Paion shall only disclose the Licensed Know-how to any Third Party insofar as such disclosure is strictly required in accordance with this Agreement, provided that prior to such disclosure such Third Party has executed and is bound by obligations of confidence in respect of the Licensed Know-how that are at least as stringent as those set out in this Agreement and which restrict onward disclosure of such information. Licensors agree that they will not disclose any Licensed Know-how during the Term to any Third Party that is not bound by confidentiality obligations with respect to such Licensed Know-how.    

9.5

In the event that:

 

9.5.1

any Licensed Right is attacked or, any application in the Licensed Rights, is opposed; or

 

9.5.2

any application for a patent is made by or any patent is granted to a Third Party by reason of which the Third Party may be granted, or may have been granted, rights in the Territory which conflict with any of the rights granted to Paion under any of the Licensed Patents; or

 

9.5.3

any unlicensed activities are carried on by any Third Party in the Territory which would reasonably be expected to constitute an infringement of any Licensed Right; or

 

9.5.4

there has or may have been any unauthorised disclosure and/or use of the Licensed Know-how in the Territory; or

 

9.5.5

any application is made for a compulsory licence under a Licensed Patent,

the Party becoming aware of such a matter shall promptly notify the other of it. Following any such notice, the Parties shall discuss the most appropriate course of action to defend and/or enforce the Licensed Rights. However, La Jolla shall have the sole right to take action to enforce and/or defend the Licensed Rights as they may in their sole discretion decide and Paion shall provide all assistance reasonably required by Licensors. The expenses incurred in taking such steps and any profits or damages or other recoveries which may be obtained shall be (in the absence of any agreement to the contrary) for the account of Licensors.

10

Confidential Information

10.1

Each Party (the "Receiving Party") undertakes:

 

10.1.1

to maintain as secret and confidential all Confidential Information obtained directly or indirectly from the other Party (the "Disclosing Party") and to respect the Disclosing Party's rights therein;

 

10.1.2

to treat the Disclosing Party's Confidential Information as the confidential and exclusive property of the Disclosing Party;

 

10.1.3

not to use such Confidential Information for any purpose other than as expressly contemplated in this Agreement or with the Disclosing Party's prior written agreement

 

10.1.4

not to disclose such Confidential Information to any person other than those of its personnel to whom and to the extent that such disclosure is reasonably necessary for the purposes of this Agreement and subject to Clause 10.3; and

 

10.1.5

take all reasonable steps necessary to prevent the unauthorised disclosure or use of any of the Disclosing Party's Confidential Information.

10.2

The provisions of Clause 10.1 shall not apply to Confidential Information which the Receiving Party can demonstrate by reasonable, contemporaneous written evidence:

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10.2.1

was, prior to its receipt by the Receiving Party from the Disclosing Party, in the possession of the Receiving Party and at its free disposal; or

 

10.2.2

is subsequently disclosed to the Receiving Party without any obligations of confidence by a Third Party who has not derived it directly or indirectly from the Disclosing Party; or

 

10.2.3

is or becomes generally available to the public through no act or default of the Receiving Party or its Affiliates or any of their personnel; or

 

10.2.4

is independently developed by the Receiving Party by individuals who have not had any knowledge of or direct or indirect access to the Disclosing Party's Confidential Information; or

 

10.2.5

is required to be disclosed to the courts of any competent jurisdiction, or to any Regulatory Authority or financial authority (including any stock exchange with which a Party’s securities are listed), provided that the Receiving Party shall (i) inform the Disclosing Party as soon as is reasonably practicable of any such required disclosure, and (ii) at the Disclosing Party's request seek a protective order or other appropriate remedy (including redaction) or otherwise seek to persuade the court, agency, or authority to have the information treated in a confidential manner, where this is possible under the court, agency, or authority's procedures.

10.3

The Receiving Party shall procure that all its personnel, who have access to any of the Disclosing Party's Confidential Information, shall be made aware of the confidential nature of the Confidential Information and shall be aware of and subject to these obligations with respect to the Disclosing Party's Confidential Information and, if such personnel otherwise are not legally bound to confidentiality obligations, shall require such personnel to enter into written undertakings of confidentiality at least as restrictive as  Clauses 10.1 and 10.2 which apply to the Disclosing Party's Confidential Information.

10.4

Notwithstanding the provisions of this Clause 10, either Party may disclose Confidential Information to its Affiliates and sub-licensees (or in the case of Licensors to its licensees outside the Territory) and their agents, representatives, employees and consultants (collectively "Third-Party Recipients"):

 

10.4.1

to the extent necessary to facilitate the performance of its obligations under this Agreement; and

 

10.4.2

as may be required to exercise the rights granted to it under this Agreement or, in the case of Confidential Information of Paion disclosed to Licensors, as may be required for Licensors to exercise the rights outside the Territory,

provided that the Party disclosing Confidential Information to a Third-Party Recipient shall:

 

10.4.3

ensure that any such disclosure is limited to what is necessary to effect the performance of its obligations and/or the exercise of its rights under this Agreement; and

 

10.4.4

procure that all Third-Party Recipients shall be made aware of the confidential nature of the Confidential Information and shall be aware of and subject to these obligations, and shall have entered into written undertakings of confidentiality at least as restrictive as Clauses 10.1 and 10.2 which apply to the Disclosing Party's Confidential Information.

10.5

If either Party is reasonably required to make any announcements concerning the transaction contemplated by this Agreement or any ancillary matter:

 

10.5.1

by law or by the rules of any securities exchange or regulatory or governmental body to which either Party is subject; or

 

10.5.2

in connection with information supplied to its shareholders from time to time,

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the announcement shall be made only after consultation with and the prior agreement of the other Party as to the terms and timetable for publication of the announcement, such consultation.

10.6

Upon any termination of this Agreement, the Receiving Party shall:

 

10.6.1

without undue delay (and in any event within fourteen (14) days) return to the Disclosing Party any documents or other materials that contain the Disclosing Party's Confidential Information, including all copies made, except for one (1) copy as may be necessary to be retained for the purpose of regulatory compliance in the files of its general counsel and not accessed for any purpose other than regulatory compliance; and

 

10.6.2

subject to Clause 10.2, make no further use or disclosure of the Disclosing Party's Confidential Information.

10.7

The obligations of the Parties under this Clause 10 shall survive the termination of this agreement for whatever reason for a period of five (5) years; provided that, the confidentiality obligations of Paion with respect to Licensed Know-how that constitutes a trade secret under applicable law shall continue following such termination for so long as the Licensed Know-how continues to be protected as a trade secret under applicable law.

10.8

Neither Party shall disclose the existence of this Agreement or any of its terms to any Third Party without the other Party's prior written agreement, such agreement not to be unreasonably withheld, except as may be required to comply with the regulations of any stock exchange or listing authority on which the Disclosing Party's shares are listed or applicable law or the rules of regulatory or governmental body to which either Party is subject. The Parties will consult with each other in advance regarding any press releases about this Agreement and its contents for the purpose of complying with the regulations of any stock exchange or listing authority on which the Disclosing Party's shares are listed or applicable law or the rules of regulatory or governmental body to which either Party is subject. Either Party may disclose the existence of this Agreement to suppliers and other vendors, bona fide potential acquirers, corporate partners, or investors, in each case, that are bound by written undertakings of confidentiality with respect thereto.

11.

PHARMACOVIGILANCE

11.1

Within [***] days of the Commencement Date, but in any case prior to launch of any of the Licensed Products in the Territory, the Parties will enter into a Pharmacovigilance Agreement, to be prepared by Paion and agreed with the Parties. For clarity, if there is any inconsistency between the provisions of this Agreement and the provisions of the Pharmacovigilance Agreement, the provisions of the Pharmacovigilance Agreement shall prevail regarding pharmacovigilance matters. The Pharmacovigilance Agreement shall set forth the obligations of each Party with respect to informing the other Party or Parties of Adverse Events and sharing correspondence with Regulatory Authorities relating to the safety of Licensed Products.

12.

Warranties

 

12.1

Each Party warrants that:

 

12.1.1

it is a corporation or limited liability company duly recognized and in good standing under the laws of the country of its incorporation or organization;

 

12.1.2

it has the full right, power, and authority to enter into this Agreement and to grant the rights and licences granted by it under this Agreement;

 

12.1.3

it has taken all necessary action on its part to authorise the execution and delivery of this Agreement and the performance of its obligations under this Agreement; and

 

12.1.4

execution, delivery of and the performance by the Party of its obligations under this Agreement shall not:

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(a)

result in a breach of any provisions of the charter, memorandum or articles of association of the Party; or

 

(b)

result in a breach of, or constitute a default under, any instrument by which the Party is bound including any agreement or arrangement between itself, an Affiliate and any Third Party; or

 

(c)

result in a breach of any order, judgment or decree of any court or governmental agency by which the Party is bound; or result in breach by that Party (or any of its employees or agents) of any regulatory requirements.

12.2

La Jolla and the Licensors represent and warrant as of the Commencement Date that:

 

12.2.1

except for the Licensed Patents licensed to Licensors under the GWU Licence and the Harvard Licence and Licensed Know-how or Programme Data controlled by Licensors that is licensed from a Third Party, Licensors are the exclusive owner or applicant of the Licensed Rights, having good, unencumbered title to the Licensed Rights, free from options, liens, security interests, or any other encumbrances of any Third Party;

 

12.2.2

Schedule 2 accurately identifies which Licensed Patents are owned by Licensors and which Licensed Patents are licensed to Licensors under the GWU Licence or the Harvard Licence;

 

12.2.3

granting of the Licensed Rights under this Agreement does not conflict with any other agreement with any Third Party (including the Revenue Interest Agreement, the GWU Licence and the Harvard Licence);

 

12.2.4

Licensors have not granted and will not grant any licenses or rights with the whole or any part of the Licensed Rights that conflict with the Licensed Rights granted hereunder;

 

12.2.5

Licensors have not received within the twenty four (24) months immediately preceding the Commencement Date written notice alleging that the practice of the Licensed Patents infringes any proprietary rights of any Third Party;

 

12.2.6

to the knowledge of La Jolla and the Licensors, but subject to the disclosures made by La Jolla’s patent counsel, Foley Hoag, LLP, to Paion Parent’s patent counsel, Konig Szynka Tillman Von Renesse, on January 11, 2021, the use of the Licensed Rights by Paion and Licensed Subsidiaries in accordance with the license granted under this Agreement will not infringe the proprietary rights of any Third Party;

 

12.2.7

to the knowledge of La Jolla and the Licensors,, but subject to the disclosures made by La Jolla’s patent counsel, Foley Hoag, LLP, to Paion Parent’s patent counsel, Konig Szynka Tillman Von Renesse on January 11, 2021, the manufacture, import, selling, marketing, distributing, supplying, offering for sale or supply, keeping and using the Licensed Products in the Territory will not infringe the proprietary rights of any Third Party;

 

12.2.8

the Licensed Patents are all the patents owned or controlled by Licensors in relation to the Licensed Products, and the Licensed Know-How is all the Know-How in the possession and control of Licensors in relation to the Licensed Products, that in each case are necessary or useful for Paion and Licensed Subsidiaries to manufacture, import sell, market, distribute, supply, offer for sale or supply, keep and use the Licensed Products in the Territory;

 

12.2.9

La Jolla and the Licensors have not received within the twenty four (24) months immediately preceding the Commencement Date any claim made against any of them in writing asserting the invalidity of any of the Licensed Patents, and no claim or demand has been asserted in writing to Licensors that challenge the rights of Licensors to license any of the Licensed Rights;

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12.2.10

La Jolla and Licensors have not granted any Third Party (including any Affiliate or investor in Licensors) any ownership interest or title to, or any encumbrances over, the Licensed Rights;

 

12.2.11

all applications, filings, registrations, renewals and fees payable in respect of the Licensed Patents and Licensed Trade Marks have been made or paid when due;

 

12.2.12

the Programme Data provided to Paion by La Jolla and Licensors will be accurate in all material respects to the knowledge of Licensors as of the date of its delivery to Paion by Licensors except as otherwise disclosed to Paion by Licensors and has been compiled in compliance with all applicable laws including respective EU regulatory standards, guidelines and requirements and to the knowledge of La Jolla and the Licensors, can be used for applying for, granting and obtaining of the Marketing Authorisations in the UK and Switzerland;

 

12.2.13

as of the Commencement Date, there are no suits, actions, claims, proceedings, or investigations pending or, to the knowledge of Licensors, threatened by or before any court, by any person relating to Licensors' ability to perform their obligations as set out in this Agreement.

12.3

No other warranty

Each of Paion and La Jolla acknowledge that, in entering into this Agreement, they do not do so in reliance on any representation, warranty, or other provision except as expressly provided in this Agreement, and any conditions, warranties, or other terms implied by statute or common law are excluded from this Agreement to the fullest extent permitted by law. Without limiting the generality of the foregoing, Licensors make no warranty (express or implied) with respect to the validity or scope of the Licensed Rights or that the exploitation of the Licensed Products in the Territory will be successful.

13.

Indemnity, limitation of liability, and insurance

13.1

The Paion Parties shall indemnify, defend and hold Licensors and their Affiliates and each of their respective officers, directors, employees and agents and subject to Clause 13.2, Harvard University and its current or former directors, governing board members, trustees, officers, faculty, medical and professional staff, employees, students, and agents and their respective successors, heirs and assigns (collectively, the "Harvard Indemnitees") harmless from and against all losses, liabilities, damages, costs and expenses (including reasonable attorney’s fees and costs of investigation and litigation, regardless of outcome) resulting from Third Party claims arising out of:

 

13.1.1

Paion's breach of any representation or warranty made by it under this Agreement;

 

13.1.2

any reckless act or omission, wilful misconduct or breach of any obligation on the part of Paion, its Affiliates and/or its agents under this Agreement; and

 

13.1.3

the sale or other exploitation of any Licensed Product by or on behalf of Paion  or any of its Affiliates or sub-licensees, including the infringement of any Third Party Intellectual Property Right in the course of such sale or exploitation (including any cause of action relating to product liability concerning any product, process, or service made, used or sold pursuant to any right or license granted under this Agreement), but excluding any claims that are subject to indemnification by La Jolla under Clause 13.2.

13.2

Notwithstanding the foregoing, (i) the obligation of the Paion Parties to indemnify, defend and hold Harvard Indemnitees harmless pursuant to Clause 13.1 shall be limited to Third Party claims arising out of the sale of XERAVA by or on behalf of Paion or any Licensed Subsidiaries or sub-licensees and (ii) La Jolla and the Parties will coordinate the Paion Parties’ indemnification obligations under this Clause 13.1 with the indemnification obligations of Tetraphase Pharmaceuticals, Inc. under the Harvard License to ensure that the Harvard Indemnitees do not receive double recoveries in respect of any claims for which they are entitled to indemnification from the Paion Parties under this Clause 13.1 and from Tetraphase Pharmaceuticals, Inc. under the Harvard License. For the

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avoidance of doubt, the Paion Parties shall not be liable for any amounts with respect to any Third Party claims pursuant to Clause 13.1 made by Harvard Indemnitees than would otherwise be payable to Licensors and their Affiliates and each of their respective officers, directors, employees and agents if such claim had been made by Licensors.

13.3

La Jolla shall indemnify, defend and hold Paion and its Affiliates and each of their respective officers, directors, employees and agents harmless from and against all losses, liabilities, damages, costs and expenses (including reasonable attorney’s fees and costs of investigation and litigation, regardless of outcome) resulting from Third Party claims arising out of:

 

13.3.1

La Jolla’s breach of any representation or warranty made by it under this Agreement;

 

13.3.2

any reckless act or omission, wilful misconduct or breach of any obligation on the part of Licensors, their Affiliates and/or their agents under this Agreement.

13.4

Without prejudice to Paion's and its Affiliates' rights in respect of Clause 12.2 and Clause 13.2.1, the Parties agree as follows with respect to the assertion of infringement claims with respect to the use, manufacture, sale or other exploitation of Licensed Products in the Territory:

 

13.4.1

If a Party becomes aware of a claim that the exercise of Licensed Rights in the Territory infringes any intellectual property rights of a Third Party, such Party shall promptly notify the other of it. Following any such notice, the Parties shall discuss the most appropriate course of action to respond to the claim;

 

13.4.2

La Jolla shall have the first right and responsibility to control the defense of such claim in consultation with Paion and Paion shall provide all assistance reasonably required by La Jolla in connection with such defense. La Jolla will keep Paion regularly informed of the status and progress of the defense of any such claim and shall consult with Paion with respect to litigation strategy and all important court filings in any litigation arising from any such claim and give good faith consideration to all input and feedback provided by Paion with respect to the conduct of the defense of any such claim. The reasonable expenses incurred in taking such steps and any reasonable damages or settlement payments owing in respect of such claim shall be shared by the Parties on a 50/50 basis and each Party agrees to promptly pay the other Party any reasonable expenses, damages or settlement amounts reasonable paid or incurred by the other Party to the extent necessary to effectuate the 50/50 sharing of responsibility of such reasonable expenses, damages or settlement payments, subject to receipt of reasonable substantiation therefor. Any settlement of any such claim shall require the written agreement of each Party, which shall not be unreasonably withheld or delayed;

 

13.4.3

Paion and/or Licensed Subsidiaries shall have the right but not the obligation to join in the defence of such claim at their sole expense and in consultation with La Jolla.

13.5

Notwithstanding the foregoing, a Party obligated to indemnify another Party shall not be liable for any claims if and to the extent any such claims are caused by a breach of this Agreement by the other Party and/or the negligence, recklessness or misconduct of the other Party.

13.6

Nothing in this Agreement excludes any Party's liability to the extent that it may not be so excluded under applicable law, including any such liability for death or personal injury caused by that person's negligence, or liability for fraud.

13.7

The Parties shall have the following obligations:

 

13.7.1

The indemnified Party shall:

 

(a)

give prompt notice to the indemnifying Party of any claim for which it seeks indemnification under this Agreement;

 

(b)

permit the indemnifying Party:

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(i)

to control any litigation relating to the claim and its disposition (provided that the indemnifying Party fulfils its obligations in Clause 13.7.2); and

 

(ii)

to settle any such claim at its discretion, provided that such settlement does not adversely affect the indemnified Party's rights under this Agreement or impose any obligations on the Indemnified Party other than those set out in this Agreement; and

 

(c)

at the indemnifying Party's reasonable expense, co-operate with the indemnifying Party in its defence of the claim, including without limitation providing promptly to the indemnifying Party all documents relevant to the claim; and

 

(d)

agree that the Party controlling the proceedings shall have sole entitlement to any payments, settlement monies, damages, costs or other expenses arising out of the claim.

 

13.7.2

The indemnifying Party shall:

 

(a)

notify the Indemnified Party promptly in writing, and in no event more than thirty (30) days after receiving notice of the claim, that it intends to indemnify the Indemnified Party (in the absence of any facts that would give the indemnifying Party the right to claim an indemnity from the Indemnified Party);

 

(b)

diligently pursue the defence of the claim and act reasonably and in good faith in relation to all matters relating to the settlement or disposition of the claim; and

 

(c)

where the settlement of the claim would adversely affect the Indemnified Party's rights under this Agreement or impose any obligations on the Indemnified Party other than those set out in this Agreement, not settle or otherwise resolve the claim without giving prior notice to the Indemnified Party and obtaining its consent in writing, such consent not to be unreasonably withheld or delayed.

 

13.7.3

The indemnifying Party shall not be liable for any settlement or other disposition of a claim by the Indemnified Party which is reached without the written consent of the indemnifying Party.

13.8

The Parties acknowledge that Harvard Indemnitees are intended third party beneficiaries of this Agreement for the purpose of enforcing the provisions of Clauses 13.1.3 and 13.9.1.

13.9

Liability of Parties

 

13.9.1

To the extent that any Party has any liability in contract, tort, or otherwise under or in connection with this Agreement, including any liability for breach of warranty, its liability shall be limited in accordance with the following provisions of this Clause 13.8. Notwithstanding the foregoing, nothing in this Clause 13.8 limits or restricts the indemnification obligations of any Party under Clauses 13.1 and 13.3 or a Party’s liability for breaches of the confidentiality obligations of Clause 8 or for wilful misconduct.

 

13.9.2

The aggregate liability of each of La Jolla and Paion (other than, in the case of Paion, its liability for the Licensing Fee, the Milestone Fees and the Royalties), howsoever arising, shall be limited to USD [***].

 

13.9.3

In no circumstances shall any Party be liable under this Agreement for any loss, damage, costs or expenses of any nature whatsoever incurred or suffered by another Party or its Affiliates that is (a) of an indirect, special or consequential nature or (b) any loss of use, business opportunity or goodwill, business interruption or direct or indirect loss of income or profit from third parties.

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13.9.4

Nothing in this Agreement excludes any person's liability to the extent that it may not be so excluded under applicable law, including any such liability for death or personal injury caused by that person's negligence, or liability for fraud.

13.10

Insurance

 

13.10.1

Each Party shall for the Term, maintain in full force and effect with financially sound and reputable insurers adequate third-party-liability insurance, including, in the case of Paion, maintaining appropriate insurance during the Term and for a period of [***] years thereafter, at its own expense, as reasonably necessary to cover its own product liability and its obligations under this Agreement. Without limiting the generality of the foregoing, Paion, at its sole cost and expense, shall procure and maintain commercial general liability insurance in amounts not less than $[***] annual aggregate, naming the [***] as additional insureds, [***];  provided that, if, notwithstanding Paion’s good faith efforts to procure [***] as additional named insureds under such commercial general liability insurance policies, Paion is unable to do so on terms that are commercially reasonable, then (i) La Jolla, in consultation with Paion, will use good faith efforts to [***] and (ii) the Paion Parties and Licensed Subsidiaries shall not be liable with respect to their inability to [***]. During any clinical trials of any Licensed Product, Paion shall, at its sole cost and expense, procure and maintain commercial general liability insurance. Such commercial general liability insurance shall provide: (a) product liability coverage and (b) broad form contractual liability coverage for Paion's indemnification under this Agreement.

 

13.10.2

Each Party shall provide to the other Party, upon request a certificate indicating that the insurance required by this Clause 13.9 is in force, such certificate to indicate any excess, the policy's commencement date, its expiry date, and the limits of liability.

14.

Duration and termination

 

14.1

This Agreement shall come into force on the Commencement Date and shall continue until terminated in accordance with this Clause 14 or by law ("Term").

 

14.2

Either Party may terminate this Agreement at any time by notice in writing to the other Party (the "Other Party") upon  the occurrence of any of the following events:

 

14.2.1

if the Other Party is in material breach of this Agreement (and, in the case of a breach capable of remedy, the breach is not remedied within 30 (thirty) days of the Other Party's receiving notice specifying the breach and requiring its remedy); or

 

14.2.2

if (A) the Other Party becomes insolvent or unable to pay its debts as and when they become due, or (B) an order is made or a resolution is passed for the winding up of the Other Party (other than voluntarily for the purpose of solvent amalgamation or reconstruction), or (C) a liquidator, administrator, administrative receiver, receiver, or trustee is appointed in respect of the whole or any part of the Other Party's assets or business, or (D) the Other Party makes any composition with its creditors, or (E) the other Party ceases, or threatens to cease to, continue its business, or (F) as a result of debt and/or maladministration the other Party takes or suffers any similar or analogous action in any jurisdiction.

14.3

Subject to compliance with applicable laws and listing rules, Paion shall notify La Jolla on the occurrence of any of the following events:

 

14.3.1

Paion or any Licensed Subsidiary fails to make any payment, when due, of principal or interest on any indebtedness for borrowed money, evidenced by bonds, debentures, notes or similar instruments or secured by any lien on any property or asset owned by Paion or such Licensed Subsidiary, in each case, that individually or in the aggregate equals or exceeds [***] and where such failure continues unremedied for a period of at least thirty (30)  days) after the date when due; or

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14.3.2

Paion or any Licensed Subsidiary shall breach or default with respect to any other term of one or more items of indebtedness in the principal amount referred to in Clause 14.3.1 above or (b) any loan agreement, mortgage, indenture or other agreement in the amount referred to in Clause 14.3.1 above relating to such item(s) of indebtedness, if the effect of such breach or default is to cause, or to permit the holder or holders of that indebtedness (or a trustee on behalf of such holder or holders) to cause, that indebtedness to become or be declared due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise).  

14.4

Without prejudice to any other right or remedy that it may have, Paion may terminate this Agreement immediately in respect of any country in the Paion Markets as to which the following is applicable, by giving notice to Licensors in writing in the event that:

 

14.4.1

within sixty (60) days after the Parties commencing negotiations for a reduction in the Royalties payable in a country in the Territory after commencement of sales of Generic Products in such country pursuant to Clause 8.7, if (i) the Parties have been unable to agree a reduction in the Royalties payable in such country in the Territory or (ii) [***], provided any such termination right shall apply solely with respect to the relevant Licensed Product in the relevant country in the Territory in which sales of the Generic Products have commenced;

 

14.4.2

upon the receipt of a material adverse regulatory determination by a Regulatory Authority in such country regarding either Licensed Product (such as a suspension of Regulatory Approval); or

 

14.4.3

any legal (including but not limited to preliminary injunction or proceedings on the merits) or administrative action, claim and/or demand brought by any Third Party or Regulatory Authority against Paion or Licensors, which prevents the manufacture, import, sale, supply, use and/or commercialisation of either Licensed Product in such country by Paion, Licensed Subsidiaries or sub-licensees.

14.5

Termination of this Agreement may occur on a Licensed Product by Licensed Product basis or in respect of one or more countries in the Territory, as relevant under the circumstances and elected by the Party having the right to terminate, and this Agreement shall retain its full effect and be validly performed by the Parties for the other Licensed Products in the countries in the Territory not subject to termination in the event of a partial termination.

15.

Consequences of termination

15.1

In the event of termination of this Agreement, all licenses granted to Paion under Clause 1 will terminate, and all sub-licenses granted by Paion or its Licensed Subsidiaries or sub-licensees with respect to the Licensed Products will also terminate, unless the applicable sub-licensee is not then in breach of its sub-license agreement or the terms of this Agreement applicable to such sub-licensee and elects in writing prior to such termination to be granted a direct license from Licensors.  Upon any termination of this Agreement other than a termination by Paion by reason of a breach by La Jolla, Paion will assign to La Jolla, to the extent permissible under applicable Law, any Marketing Authorization then held by Paion or any Affiliate.

15.2

Termination or expiry of this Agreement for any cause shall not bring to an end any provisions of this Agreement which in order for full effect to be given to them need to survive termination of this Agreement (including for the avoidance of doubt the provisions of Clauses 8.13, 10, 13, 17), which shall continue in full force and effect in accordance with their terms. Subject to Clause 15.3, Paion, Licensed Subsidiaries and sub-licensees shall have the right to continue selling in the Territory for a period of six (6) months after termination of this Agreement any and all inventory of each Licensed Product existing at the time of termination of this Agreement or ordered before the time of termination of this Agreement by Paion, Licensed Subsidiaries and sub-licensees (being "Remaining Licensed Product"). Termination of this Agreement shall not affect any payment obligations that have accrued at the time of termination.

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15.3

If La Jolla terminate this Agreement pursuant to Clause 14.2, Paion, Licensed Subsidiaries and sub-licensees shall immediately cease all sales of Licensed Products in the Territory and La Jolla shall purchase all Remaining Licensed Product in the case of Licensed Product purchased from a Third Party manufacturer, at the price paid by Paion, Licensed Subsidiaries and sub-licensees for such Remaining Licensed Product and, in the case of Licensed Product manufactured by an Affiliate of Paion or a sub-licensee, at a price equal to the manufacturing cost of such Licensed Product.  

15.4

Save as expressly stated in this Agreement, termination of this Agreement for any reason shall be without prejudice to any other right or remedy of either Party accruing prior to such termination.

16.

ASSIGNMENT AND CHANGE OF CONTROL

16.1

Subject to Clause 16.2, Paion shall not assign, mortgage, charge, or otherwise transfer any rights or obligations under this Agreement without the prior written consent of Licensors.

16.2

Paion, subject to prior written notice to Licensors and without relieving Paion of any its obligations hereunder, may assign and transfer all its rights and obligations under this Agreement to any of its Affiliates (as nominated by Paion from time to time).

16.3

In case of Change of Control of a Party, such Party undertakes to immediately inform the other Party in writing. In the event of a Change of Control of Paion, where at completion of such Change of Control, the person acquiring Control of Paion or an Affiliate thereof owns or markets a Competing Product, La Jolla shall, for a period not more than three (3) months from the date of completion of such Change of Control, have the right to terminate this Agreement only with respect to the Licensed Product to which the Competing Product relates upon written notice to Paion.

17.

General

 

17.1

This Agreement shall bind and be performed for the benefit of the Parties, and their respective permitted successors and assigns.

 

17.2

Neither Party shall have any liability or be deemed to be in breach of this Agreement for any delays or failures in performance of this Agreement, other than an obligation for the payment of money, that result from circumstances beyond the reasonable control of that Party, including without limitation war, actions taken in anticipation of war, civil commotion, destruction of production facilities or materials by causes not attributable to a Party (such as fires, earthquakes or storms), labour disturbances, epidemics, pandemics and actions taken to prevent and respond to epidemics and pandemics, failure of public utilities or common carriers and strikes. The Party affected by such circumstances shall:

 

17.2.1

promptly notify the other Party in writing when such circumstances cause a delay or failure in performance and when they cease to do so; and

 

17.2.2

use its reasonable endeavours to avoid or remove the causes of non-performance and shall continue performance as expeditiously as possible as soon as such causes have been removed.

17.3

This Agreement may only be amended in writing signed by duly authorised representatives of La Jolla and Paion.

17.4

No failure or delay on the part of either Party to exercise any right or remedy under this Agreement shall be construed or operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude the further exercise of such right or remedy.

17.5

If any provision or part of this Agreement is held to be invalid, amendments to this Agreement may be made by the addition or deletion of wording as appropriate to remove the invalid part or provision but otherwise retain the provision and the other provisions of this Agreement to the maximum extent permissible under applicable law.

17.6

Nothing in this Agreement shall create, evidence, or imply any agency, partnership, or joint venture

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between the Parties. Neither Party shall act or describe itself as the agent of the other, nor shall it make or represent that it has authority to make any commitments on the other's behalf.

17.7

All notices related to this Agreement shall be in writing and in English and be sent to the relevant Party at the address as stated on the first page of this Agreement (or any such other trade address notified to the Parties from time to time). To be valid, amendments and modifications to this Agreement have to be signed by both parties. Such notices shall be deemed received as follows:

 

17.7.1

if sent by post, on the seventh (7th) day after the date of posting; or

 

17.7.2

if sent electronically, upon receipt by the sender of a transmission report (or other appropriate evidence) confirming that the electronic submission has been transmitted to the addressee, unless such delivery occurs on a day which is not a business day in the country of receipt or after 4 p.m. on a business day, in which case it will be deemed to have been given or made at 9 a.m. on the next business day.

17.8

Before any dispute, difference or disagreement concerning this Agreement proceeds to arbitration or to litigation, the Parties shall seek to resolve the matter within thirty (30) days by referring it to each Party's Chief Executive or another senior member of each Party. The Parties' respective Chief Executives (or their nominees) shall meet to try to resolve the dispute.

17.9

Any matter or dispute arising out of or in connection with this Agreement which is not able to be resolved pursuant to Clause 17.8 shall be finally settled by commercial arbitration by a single arbitrator to be held in England in accordance with the rules and procedures of the London Court of International Arbitration. The Parties shall ensure that the arbitrator appointed is capable of making decisions on the technical aspects of the dispute as well as experienced in the interpretation and enforcement of contracts made under English law. The arbitrator shall have the power to award costs as he or she sees fit.

17.10

The validity, construction and performance of this Agreement shall be governed by English law and shall be subject to the exclusive jurisdiction of the English courts to which the parties hereby submit, except that a Party may seek an interim injunction in any court of competent jurisdiction.

17.11

Each Party agrees to execute, acknowledge, and deliver such further instruments, and do all further similar acts, as may be necessary or appropriate to carry out the purposes and intent of this Agreement.

17.12

This Agreement sets out the entire agreement between the Parties relating to its subject matter, and supersedes all prior oral or written agreements, arrangements, or understandings between them relating to such subject matter. Subject to Clause 13.8.4, the Parties acknowledge that they are not relying on any representation, agreement, term, or condition which is not set out in this Agreement.

17.13

Except for the rights of the Indemnitees as provided in Clause 13.1 and subject to Clause 13.2, who may in their own right enforce the provisions of that Clause, this Agreement does not create any right enforceable by any person who is not a party to it. The Parties may amend, renew, terminate, or otherwise vary all or any of the provisions of this Agreement, including Clause 13.1 without the consent of the Indemnitees.

17.14

La Jolla shall ensure that all Licensors fulfil their obligations under this Agreement and, subject to Clause 13.8, La Jolla shall be liable for all damages suffered by Paion and Licensed Subsidiaries arising from any breaches of this Agreement by any Licensor as if such breaches arose from the acts or omissions of La Jolla. Paion shall ensure that all Licensed Subsidiaries comply with the applicable terms and conditions of this Agreement and, subject to Clause 13.8, shall be liable for all damages suffered by La Jolla arising from any breaches of this Agreement by any Licensed Subsidiary as if such breaches arose from the acts or omissions of Paion.    

17.15

This Agreement may be executed in any number of counterparts, and by each Party on separate counterparts. Each counterpart is an original, but all counterparts will together constitute one and the same instrument. Delivery of an executed counterpart signature page of this Agreement by e-mail (PDF) or fax will be as effective as delivery of a manually executed counterpart of this Agreement. In

23

 


 

 

relation to each counterpart, upon confirmation by or on behalf of the signatory that the signatory authorises the attachment of such counterpart signature page to the final text of this Agreement, such counterpart signature page will take effect together with such final text as a complete authoritative counterpart.


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DEFINITIONS

 

1.

Definitions

1.1

In this Agreement, the following words and phrases shall have the meaning set out below:

"Annual Aggregate Net Sales"

The aggregate amount of Net Sales in each Year.

"Annual Aggregate Net Receipts"

The aggregate amount of Net Receipts in each Year.

"Adverse Event"

Any untoward medical occurrence in a patient to whom the Licensed Product has been administered, which may or may not have a causal relationship with the Licensed Product.

"Affiliate"

In relation to a Party, means any business entity that controls, is controlled by or is under common control with that Party; for the purposes of this definition, 'control' shall refer to: (i) the possession, directly or indirectly, of the power to direct the management or policies of an entity by contract or otherwise, or (ii) the ownership, directly or indirectly, of more than 50% (or in any country other than the country in which the Party is incorporated, such lesser percentage as is the maximum permitted level of foreign investment) of the voting securities or capital stock or other ownership interest of an entity.

cGMP

 

 

 

 

 

 

 

The current Good Manufacturing Practices and standards as set forth (and as amended from time to time) in the practices and standards under the applicable laws in the Territory, and the country in which each Licensed Product is manufactured hereunder, where applicable subject to any arrangements, additions or clarifications, and the respective roles and responsibilities, agreed from time to time between the parties in writing.

Change of Control

With respect to a Party, (a) a merger, consolidation, recapitalization, or reorganization of such Party with a Third Party that results in the holders of beneficial ownership (other than by virtue of obtaining irrevocable proxies for purposes of management voting on matters as directed by beneficial owners) of the voting securities of such Party outstanding immediately prior thereto, or any securities into which such voting securities have been converted or exchanged, ceasing to hold beneficial ownership of more than 50% of the combined voting power of the surviving entity or the parent of the surviving entity immediately after such merger, consolidation, recapitalization, or reorganization, (b) a transaction or series of related transactions in which a Third Party, together with its Affiliates, becomes the direct or indirect beneficial owner of more than 50% of the combined voting power of the outstanding securities of such Party, or (c) the sale or other transfer to a Third Party of all or substantially all of such Party’s and its controlled Affiliates’ assets.  Notwithstanding the foregoing, any transaction or series of transactions effected for the purpose of financing the operations of the applicable Party or changing the form or jurisdiction of organization of such Party (such as an initial public offering or other offering of equity securities to non-strategic investors or corporate reorganization) will not be deemed a “Change of Control” for purposes of this Agreement.

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"Claims"

All demands, claims, and liability (whether criminal or civil, in contract, tort, or otherwise) for losses, damages, legal costs, and other expenses of any nature whatsoever and all costs and expenses (including legal costs) incurred in connection therewith.

"Commencement Date"

January 12, 2021.

"Commercially Reasonable Efforts"

Such effort and resources that would typically be exerted by a reasonable Third-Party pharmaceutical company similar in size, scope, and business profile to Paion to develop and commercialise in the Territory a pharmaceutical product of similar market potential and at a similar stage of its product life.

"Competing Product"

With respect to Giapreza, a vasopressor for distributive shock approved in the Territory and with respect to XERAVA, a broad-spectrum antibiotic product approved in the Territory with similar antibacterial efficacy against similar bacterial strains (i.e., ESBLs, CRE, Acinetobacter, Atypicals).

"Confidential Information"

All confidential information disclosed by, or behalf of, a Party to the other Party in whatever form, whether marked as confidential or not, whether oral or in written, graphical, digital or other tangible form, including the provisions of this Agreement and information that would be regarded as confidential by a reasonable person relating to:

(a)    any confidential scientific and medical information and technical data invented or developed or acquired by Licensors relating to the Active Pharmaceutical Ingredient and Licensed Product, including physical, chemical, bioequivalence and analytical data, product forms and formulations, control assays and specifications, methods of preparation and stability data and specifically including all information contained in any regulatory dossier;

(b)    the business, affairs, customers, clients, suppliers, strategies, plans, intentions or market opportunities of a Party or its Affiliates;

(c)    the operations, processes, technologies, formulations, techniques, compositions of matter, test results, chemical, clinical and physical data, product information, know-how, designs, trade secrets, software or other Intellectual Property Rights of a Party or its Affiliates; and

(d)    any information or analysis derived from the Confidential Information.

"Control"

Direct or indirect beneficial ownership of fifty percent (50%) or more of the share capital, stock or other participating interest carrying the right to vote or to distribution of profits of that Party, as the case may be.

Emergent Agreement

means the Master Manufacturing Agreement dated November 20, 2017 between La Jolla and Cangene Biopharma LLC d/b/a Emergent Biosolutions (“CBI”), as amended by the First Amendment entered as of February 21, 2018 between La Jolla and CBI.

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“GAAP”

The generally accepted accounting principles in the United States of America in effect from time to time.

Generic Product

any pharmaceutical product sold by a Third Party (excluding Licensed Products sold by sub-licensees on behalf of Paion or its Licensed Subsidiaries in accordance with the terms of this Agreement or any settlement agreement pertaining to patent litigation arising in connection with this Agreement) that: (a) contains the same active ingredient as the applicable Licensed Product; (b) is approved by the Regulatory Authority in such country as a substitutable generic for such Licensed Product; or (c) is approved in reliance, in whole or in part, on a prior Regulatory Approval of such Licensed Product.

“Governmental Authority”

Any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, government, including, without limitation, any self-regulatory organization.

 

"GWU Licence"

The Amended and Restated Patent License Agreement dated as of March 1, 2016 between George Washington University and La Jolla.

"Harvard Licence"

The License Agreement dated as of August 3, 2006 between Harvard University and Tetraphase Pharmaceuticals, Inc., as amended.

"Improvement"

Any improvement, enhancement or modification to the Licensed Know-how relating to the manufacture of Licensed Products.

 

"Intellectual Property Rights"

Any and all trademarks, service marks, logos, trade or business names, drawings, patents, utility models, registered designs, unregistered design rights, copyright, database rights, right to prevent passing off, rights in respect of Confidential Information, rights under data exclusivity laws, rights under orphan drug laws, rights under unfair competition laws, property rights in biological or chemical materials, extension of the terms of any such rights (including supplementary protection certificates), applications for and the right to apply for any of the foregoing registered property and rights, rights in Know-how, and similar or analogous rights anywhere in the world.

"Know-how"

All technical and other information relating to the Licensed Products which is not in the public domain, including information relating to Licensed Products comprising or related to concepts, discoveries, data, designs, formulae, ideas, inventions, methods, models, procedures, designs for experiments and tests and results of experimentation and testing, processes, specifications and techniques, laboratory reports, clinical data, manufacturing data, and information contained in submissions to Regulatory Authorities.

 

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La Jolla Supplier Agreements

Means, collectively, the Emergent Agreement, the Novasep Agreement, the Patheon Agreement and the PolyPeptide Agreement.

"Licensed Know-how"

Know-how in the possession or control of Licensors and their Affiliates which:

(a)    relates to the Licensed Patents and/or the technology that is the subject of the Licensed Patents;

(b)    is required for the purpose of using the Licensed Patents and/or the technology that is the subject of the Licensed Patents; and/or

(c)    relates to the Licensed Products;

in each case, which is necessary or useful for Paion and its Licensed Subsidiaries to manufacture, import or sell Licensed Products.

"Licensed Patents"

The patents and patent applications listed in Schedule 2 to this Agreement and any and all patents resulting from any such applications, including all extensions, additions, divisions continuations, continuations-in-part, reissues, and re-examinations thereof.

"Licensed Products"

Giapreza™ (Angiotensin II) and XERAVA™ (Eravacycline).

"Licensed Rights"

The Licensed Patents, the Licensed Trademarks, the Licensed Know-how, the Programme Data and all Intellectual Property Rights of Licensors therein.

"Licensed Trade Marks"

The trade marks listed in Schedule 3.

"Licensing Fee"

USD 22,500,000.

"Licensors"

Has the meaning given in the Recitals.

"Marketing Authorisation"

Such formal approval from the Regulatory Authority as is necessary for the marketing, sale, and use of the Licensed Products within the Territory.

 

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"Milestone Fees"

XERAVA™ Milestone Fee

 

XERAVA™ Milestone

 

 

USD 2,000,000

 

Upon Annual Aggregate Net Sales and Annual Aggregate Net Receipts for XERAVA™ in the Territory exceeding [***]

 

 

USD 2,500,000

 

Upon grant of a Marketing Authorisation by the European Medicines Agency for a second indication of use for XERAVA™ in the Territory

 

 

USD 5,000,000

 

Upon Annual Aggregate Net Sales and Annual Aggregate Net Receipts for XERAVA™ in the Territory exceeding [***]

 

 

USD 15,000,000

 

Upon Annual Aggregate Net Sales and Annual Aggregate Net Receipts for XERAVA™ in the Territory exceeding [***]

 

 

 

 

 

Giapreza™ Milestone Fee

 

Giapreza™ Milestone

 

 

USD 5,000,000

 

Upon Annual Aggregate Net Sales and Annual Aggregate Net Receipts for Giapreza™ in the Territory exceeding [***]

 

 

USD 5,000,000

 

Upon Annual Aggregate Net Sales and Annual Aggregate Net Receipts for Giapreza™ in the Territory exceeding [***]

 

 

USD 15,000,000

 

Upon Annual Aggregate Net Sales and Annual Aggregate Net Receipts for Giapreza™ in the Territory exceeding [***]

 

 

USD 60,000,000

 

Upon Annual Aggregate Net Sales and Annual Aggregate Net Receipts for Giapreza™ in the Territory exceeding [***]

 

 

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"Net Receipts"

The gross amount, including royalties received by Paion or any of its Licensed Subsidiaries from any sub-licensees (including distributors) with respect to sales or other dispositions to a Third Party of Licensed Product in the Sub-licensed Markets minus the following deductions;

(a)    the supply price paid by Paion and its Licensed Subsidiaries for the Licensed Products, whether in bulk, finished form or otherwise, and whether purchased from Licensors and/or Third Parties;

(b    excise taxes, sales taxes, duties, VAT and other similar taxes paid by Paion and/or Licensed Subsidiaries for the Licensed Products;

(d)    storage, freight, postage, shipping, transport, customs, duties, insurance and other transportation and logistics charges paid by Paion and/or Licensed Subsidiaries for the Licensed Products;

(e)    non-affiliated brokers or agent commissions, distribution services agreement fees and other similar amounts allowed or paid by Paion and/or Licensed Subsidiaries to Third Party distributors, including specialty distributors of the Licensed Product; and

(f)    any write-offs or allowances for bad debts taken by Paion or any of its Licensed Subsidiaries, including bad debts and unrecoverable amounts.

For clarity, Net Receipts shall not include any amounts received by Paion or any of its Licensed Subsidiaries as Net Sales.

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"Net Sales"

The gross amount billed, invoiced or otherwise recognized as revenue in accordance with GAAP with respect to sales or other dispositions to a Third Party of Licensed Product in the Paion Markets by Paion or any of its Licensed Subsidiaries (but not including sales to an Affiliate of Paion unless the Affiliate is the ultimate end user of the Licensed Products), minus the following deductions:

(a)    credits or allowances granted for damaged products, product expirations, returns, recalls or rejections of the Licensed Product, or for retroactive price reductions and billing errors or adjustments;

(b)    trade and quantity discounts, allowances and credits (including chargebacks);

(c)    excise taxes, sales taxes, duties, VAT and other similar taxes;

(d)    freight, postage, shipping, customs, duties and shipping insurance expense and other transportation charges directly related to the distribution of the Licensed Product;

(e)    non-affiliated brokers or agent commissions, distribution services agreement fees and other similar amounts allowed or paid to Third Party distributors, including specialty distributors of the Licensed Product;

(f)    rebates made with respect to sales paid for by any Governmental Authority, their agencies and purchasers and reimbursers, public or private hospitals, managed health care organizations, group purchase organizations or to trade customers;

(g)    the portion of administrative fees paid during the relevant time period to group purchasing organizations or pharmaceutical benefit managers or similar organizations relating to the Licensed Product;

(h)    any write-offs or allowances for bad debts taken by Paion or its Licensed Subsidiaries, including bad debts and unrecoverable amounts; and

(i)    any customary or similar payments to the foregoing (a) – (h) that apply to the sale or disposition of pharmaceutical products.

For clarity, Net Sales shall not include any amounts received by Paion or any of its Licensed Subsidiaries as Net Receipts.

“Novasep Agreement”

The Commercial Supply Agreement entered into on October 16, 2017 between Tetraphase Pharmaceuticals, Inc. and Finorga SAS.

 

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"Paion Markets"

The following countries in the Territory where Paion and its Licensed Subsidiaries will be selling the Licensed Products: Netherlands, Denmark, Germany, France, United Kingdom, Italy, Sweden, Norway, Finland, Austria, Belgium, Ireland, Spain, Portugal, Estonia and Lithuania and any other country in the Territory that is not included in the Sub-Licensed Markets.

“Patheon Agreement”

The Master Manufacturing Services Agreement dated as of June 14, 2017 between Patheon UK Limited and Tetraphase Pharmaceuticals, Inc., as supplemented by the Product Agreement entered into November 30, 2018 between Patheon UK Limited and Tetraphase Pharmaceuticals, Inc.  

"Partnering Program"

The program activities to be undertaken by the Parties as described in Schedule 1.  

"Patent Fees"

Has the meaning given in Clause 9.1.

"Payment Cap"

Has the meaning given in Clause 8.6.

"Pharmacovigilance Agreement"

A separate agreement between the Parties setting out each Party's responsibilities in relation to pharmacovigilance of the Licensed Products.

PolyPeptide Agreement

means the Master Supply Agreement dated as of March 1, 2018 between La Jolla and  PolyPeptide Laboratories San Diego, Inc. (“PPL-SD”), as supplemented by Work Order, LJPCAG005, dated April 8, 2020 between La  Jolla and PPL-SD.

"Programme Data"

All data owned or controlled by La Jolla or Licensors and in their possession from any testing of the Licensed Product, including without limitation all such data relating to toxicological, stability, pharmacological and clinical studies in human beings, and any other test data related to the Licensed Product.

"Quarterly Periods"

The periods of three (3) months commencing on 1 January, 1 April, 1 July and 1 October, respectively.

"Regulatory Authority"

The body responsible for granting the Marketing Authorisations of the Licensed Product in each country of the Territory.

"Revenue Interest Agreement"

The Revenue Interest Agreement dated 10 May 2018 between Healthcare Royalty Management, LLC and La Jolla Pharma, LLC, as amended.

"Royalties"

The amounts payable in accordance with Clause 8.4.

"Serious Adverse Event"

Any untoward medical occurrence or effect that at any dose results in death, is life-threatening, requires hospitalization or prolongation of existing hospitalization, results in persistent or significant disability or incapacity, or is a congenital anomaly or birth defect. In addition, important medical events that may not result in death, be life-threatening, or require inpatient hospitalisation may be considered a Serious Adverse Event when, based upon appropriate medical judgement, they may jeopardize the patient and may require medical or surgical intervention to prevent one of the outcomes listed in this definition.

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"Sub-licensed Markets"

The following countries in the Territory where Paion and its Licensed Subsidiaries will be sub-licensing their rights with respect to sales of the Licensed Products: Greece, Croatia, Slovakia, Slovenia, Bulgaria, Romania, Poland and Hungary.

"Supply Agreement"

The supply agreement to be negotiated and entered into in accordance with Clause 5.

"Territory"

The UK, Switzerland and the European Economic Area (EEA), which includes all member state countries of the European Union and Iceland, Liechtenstein and Norway, and as may be mutually extended or amended by written agreement of the Parties.

"Term"

"Third Party Supplier"

Has the meaning given in Clause 14.1.

Cangene Biopharma LLC d/b/a Emergent Biosolutions, Finorga, SAS, Patheon UK Limited and PolyPeptide Laboratories San Diego, Inc.

"Third Party"

Any person other than the Parties and their respective Affiliates.

"Valid Claim"

Any Licenced Patent which has not expired, been revoked or held unenforceable or invalid by a final decision of a court or other governmental authority of competent jurisdiction and which has not been disclaimed (other than terminal disclaimers), dented or admitted to be invalid or unenforceable through reissue or disclaimer (other than terminal disclaimers), or otherwise and which, in the case of an patent application that has not proceeded to grant, has been pending for no more than [***] years from the date on which it was made.

"VAT"

Any value added tax imposed in any member state of the European Union pursuant to Council Directive (EC) 2006/112 on the common system of value added tax and national legislation implementing that Directive or any predecessor to it, or supplemental to that Directive, or any similar tax which may be substituted for or levied in addition to it or any value added, sales, turnover or similar tax imposed in any country that is not a member of the European Union.

"Year"

The period from 1 January to 31 December inclusive, for which the Annual Aggregate Net Sales and Annual Aggregate Net Receipts is calculated.

 

1.2

In this Agreement, unless the context requires otherwise:

 

1.2.1

each of La Jolla and Paion are a "Party" and together La Jolla and Paion are the "Parties"';

 

1.2.2

references to Paragraphs and Schedules are to Paragraphs of and Schedules to this Agreement;

 

1.2.3

references to the singular shall include the plural and vice versa;

 

1.2.4

the Schedules will have the same force and effect as if expressly set out in the body of this Agreement;

 

1.2.5

headings are inserted for convenience only and shall not affect the construction or

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interpretation of this Agreement;

 

1.2.6

the words “including” or “includes” mean “including (or includes) without limitation”;

 

1.2.7

in relation to any warranty given under this Agreement, the phrase 'to its knowledge' shall mean to the actual knowledge of the employees of the Party making the warranty as of the date of this Agreement and without any type of external investigation or search;

 

1.2.8

references in this Agreement to termination shall include termination by expiry;

 

1.2.9

reference to any legislation or law or to any provision thereof shall include references to any such law as it may, after the date hereof, from time to time, be amended, supplemented or re-enacted, and any reference to statutory provision shall include any subordinate legislation made from time to time under that provision;

 

1.2.10

when any number of days is prescribed in any document, the time period shall start on the next business day after the occurrence of the specified event. If the last day does not fall on a business day, then the last day shall be the next succeeding day which is a business day; and

 

1.2.11

a business day shall mean any day of the week excluding Saturdays and Sundays and public holidays on which commercial banks are open in the Territory.

 

Agreed and accepted by the authorised representatives of the Parties.

SIGNED for and on behalf of PAION AG acting by:

 

Name:

Abdelghani Omari

Position:

CFO

Signature:

/s/ Abdelghani Omari

 

 

SIGNED for and on behalf of PAION DEUTSCHLAND GMBH acting by:

 

Name:

Abdelghani Omari

Position:

Managing Director

Signature:

/s/ Abdelghani Omari

 

SIGNED for and on behalf of LA JOLLA PHARMACEUTICAL COMPANY acting by:

 

Name:

Larry Edwards

Position:

President and CEO

Signature:

/s/ Larry Edwards

 

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SIGNED for and on behalf of La Jolla Pharmaceutical II B.V. acting by:

 

Name:

Larry Edwards

Position:

Director

Signature:

/s/ Larry Edwards

 

SIGNED for and on behalf of La Jolla Pharma, LLC acting by:

 

Name:

Larry Edwards

Position:

President and CEO

Signature:

/s/ Larry Edwards

 

SIGNED for and on behalf of Tetraphase Pharmaceuticals, INC. acting by:

 

Name:

Larry Edwards

Position:

President and CEO

Signature:

/s/ Larry Edwards

SIGNED for and on behalf of Tetraphase Pharmaceuticals Ireland Limited acting by:

 

Name:

Larry Edwards

Position:

President and CEO

Signature:

/s/ Larry Edwards


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Schedule 1

Appointment of Expert

1.

Referral Notice. Pursuant to Clause 8.15, either Party may serve notice on the other (a "Referral Notice") that it wishes to refer to an expert (the "Expert") the questions set out in that Paragraph.

2.

Appointment of Expert. The Parties shall agree the identity of a single independent, impartial Expert to determine such questions. In the absence of such agreement within thirty (30) days of the Referral Notice, each Party shall appoint its own expert, and the two appointed experts shall together appoint an independent, impartial Expert and such Expert shall alone resolve the questions referred to in Paragraph 1 above.

3.

Exchange of statements of case. Thirty (30) days after the giving of a Referral Notice, both Parties shall exchange simultaneously statements of case in no more than ten thousand (10,000) words in total, and each Party shall simultaneously send a copy of its statement of case to the Expert. Each Party may, within thirty (30) days of the date of exchange of statements of case pursuant to this Paragraph 3, serve a reply to the other Party's statement of case of not more than ten thousand (10,000) words. A copy of any such reply shall be simultaneously sent to the Expert.

4.

The Expert shall have the power to request copies of any documents in the possession and/or control of the Parties that may be relevant to the dispute. Each Party shall immediately provide to the Expert and the other Party copies of any documents so requested by the Expert. The Expert shall make his or her decision on the questions in dispute on the basis of written statements and supporting documentation only, and subject to Paragraph 5 there shall be no oral hearing.

5.

The Expert shall have no power to alter, amend, or add to the provisions of this Agreement, except that the Expert shall have the power to decide all procedural matters relating to the dispute and may call for a one-day hearing if desirable and appropriate.

6.

The Expert shall issue his or her decision in writing within [***] days of the date of service of the last reply under Paragraph 3 above or, in the absence of receipt of any replies, within [***] days of the date of exchange of statements of case under Paragraph 3 above.

7.

The Expert's decision shall be final and binding on the Parties except in the case of manifest error. The Expert shall decide the dispute as an expert and not as an arbitrator.

8.

The Expert's charges shall be borne by the Parties in such proportions as the Expert shall decide.

9.

The language of dispute resolution shall be English.

10.

All documents and information disclosed in the course of expert proceedings and the decision of the Expert shall be kept strictly confidential by the recipient and shall not be used by the recipient for any purpose except for the purposes of proceedings and/or the enforcement of the Expert's decision.


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Schedule 2

LICENSED patents

[***]

 

 

 

 


37

 


 

 

Schedule 3

LICENSED TRADEMARKS

[***]

 


38

 


 

 

Schedule 4

PARTNERING PROGRAMS

 

 

Clinical activities

 

Licensed Product Supply and Quality activities

 

Commercial activities, including pricing of Licensed Products in the Territory

 


39

 


 

 

Schedule 5

SUPPLY TerMS

[***]

 

 

 

 

 

 

40

 

 

Exhibit 10.7

 

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Double asterisks denote omissions.

 

 

 

LICENSE AGREEMENT

Between

TETRAPHASE PHARMACEUTICALS, INC.

And

PRESIDENT AND FELLOWS OF

HARVARD COLLEGE

 

 

 

 

 


 

 

Table of Contents

 

 

 

 

 

 

 

 

Section

 

 

  

Page

 

 

 

 

  1.

 

Definitions

  

 

1

  

 

 

 

  2.

 

Title; Disclosure

  

 

6

  

 

 

 

  3.

 

Patent Filing, Prosecution and Maintenance

  

 

7

  

 

 

 

  4.

 

License Grant

  

 

9

  

 

 

 

  5.

 

Development and Commercialization

  

 

13

  

 

 

 

  6.

 

Consideration for Grant of License

  

 

14

  

 

 

 

  7.

 

Reports; Payments; Records

  

 

19

  

 

 

 

  8.

 

Enforcement of Patent Rights

  

 

20

  

 

 

 

  9.

 

Warranties; Limitation of Liability

  

 

22

  

 

 

 

10.

 

Indemnification

  

 

23

  

 

 

 

11.

 

Term and Termination

  

 

25

  

 

 

 

12.

 

Miscellaneous

  

 

27

  

 

 

 

 

 

 

Exhibit 1.5

  

Development Milestones

  

 

 

 

 

Exhibit 1.6

  

Development Plan

  

 

 

 

 

Exhibit 6.2.1

  

Form of Investment Representation Letter

  

 

 

 

 

Exhibit 6.2.2.1

  

Capitalization Table

  

 

 

ii

 


 

LICENSE AGREEMENT

This License Agreement is entered into as of this 3rd day of August, 2006 (the “Effective Date”), by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation, with its principal place of business c/o Mediphase Venture Partners, 3 Newton Executive Park, Suite 104, Newton, MA 02462 (“Licensee”) and President and Fellows of Harvard College, Holyoke Center, Suite 727, 1350 Massachusetts Ave., Cambridge, MA (“Harvard”). Dr. Andrew G. Myers shall also be party to this Agreement, but solely for purposes of Article 2.

WHEREAS, Harvard is the owner of the Harvard Patent Rights (as defined below) and has the right to grant licenses under the Harvard Patent Rights; and

WHEREAS, Harvard desires to have products based on such patent rights developed and commercialized to benefit the public and is willing to grant a license under such patent rights; and

WHEREAS, Licensee has represented to Harvard, in order to induce Harvard to enter into this Agreement, that Licensee shall commit itself to commercially reasonable efforts to develop, obtain regulatory approval for and commercialize products based on such patent rights; and

WHEREAS, Licensee wishes to obtain a license under such patent rights and Harvard wishes to grant Licensee a license under such patent rights, all in accordance with the terms and conditions of this Agreement; and

WHEREAS, Licensee wishes to retain the services of Dr. Andrew G. Myers as a consultant with respect to the subject matter of this Agreement.

NOW, THEREFORE, the panics hereto, intending to be legally bound, hereby agree as follows:

1. Definitions.

Whenever used in this Agreement with an initial capital letter, the terms defined in this Article I, whether used in the singular or the plural, shall have the meanings specified below.

1.1. “Affiliate” shall mean, with respect to either party, any person, organization or entity controlling, controlled by or under common control with, such party. For purposes of this definition only, “control” of another person, organization or entity shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the activities, management or policies of such person, organization or entity, whether through the ownership of voting securities, by contract or otherwise. Without limiting the foregoing, control shall be presumed to exist when a person, organization or entity (i) owns or directly controls fifty percent (50%) or more of the outstanding voting stock or other ownership interest of the other organization or entity, or (ii) possesses, directly or indirectly, the power to elect or appoint fifty percent (50%) or more of the members of the governing body of the organization or other entity. The parties acknowledge that in the case of certain entities organized under the laws of certain countries outside of the United States, the maximum percentage ownership permitted by law for a foreign investor may be less than fifty percent (50%), and that in such cases such lower percentage shall be substituted in the preceding sentence.

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1.2. “Calendar Quarter” shall mean each of the periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31, for so long as this Agreement is in effect.

1.3. “Combination Product” shall mean a pharmaceutical preparation that includes one or more Non-Covered Components in addition to one or more Covered Components. All references to Licensed Product in this Agreement shall be deemed to include Combination Product.

1.4. “Covered Component” shall mean any compound (or part thereof) the production, making, use, sale or importation of which falls within the scope of a Valid Claim.

1.5. “Development Milestones” shall mean the development and commercialization milestones set forth in Exhibit 1.5 hereto.

1.6. “Development Plan” shall mean the plan for the development and commercialization of Licensed Products attached hereto as Exhibit 1.6, as such plan may be adjusted from time to time pursuant to Section 5.2.

1.7. “Dr. Myers” shall mean Dr. Andrew G. Myers.

1.8. “FDA” shall mean the United States Food and Drug Administration.

1.9. “Harvard Inventions” shall mean any inventions or discoveries made solely by Dr. Myers (so long as he is an employee of Harvard) in the performance of services for Licensee relating to tetracycline chemistry, including methods of synthesis and novel analogs of tetracycline.

1.10. “Harvard Patent Rights” shall mean, in each case to the extent owned and controlled by Harvard: (a) [**] (including the PCT application and/or the US regular utility application filed at or prior to the one year conversion date claiming priority to such provisional application); (b) any patent or patent application that claims priority to and is a divisional, continuation, reissue, renewal, reexamination, substitution or extension of any patent or patent application identified in (a); (c) any patents issuing on any of the patent applications identified in (a) or (b) and any reissues, renewals, reexaminations, substitutions or extensions thereof; (d) any claim of a continuation-in-part application or patent that is entitled to the priority date of, and is directed specifically to subject matter specifically described in, at least one of the patents or patent applications identified in (a), (b) or (c); (e) any foreign counterpart of any of the patents or patent applications identified in (a), (b) or (c) or of the claims identified in (d); and (f) any claim of any United States or foreign patent or patent application to the extent specifically directed to subject matter of Harvard Inventions.

1.11. “IND” shall mean an FDA Investigational New Drug application, Clinical Study Application, Clinical Trial Exemption, or similar application or submission for approval to conduct human clinical investigations filed with or submitted to a Regulator Authority in any country in conformance with the requirements of such Regulatory Authority.

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1.12. “IND-Enabling GLP Toxicology Studies” shall mean genotoxicity, acute toxicology, safely pharmacology, and/or sub-chronic toxicology studies, in species that satisfy applicable regulatory requirements, using applicable Good Laboratory Practices, that meet the standard necessary for submission as part of the filing of an IND with a Regulatory Authority.

1.13. “Infringed Patent” shall mean an issued and unexpired patent (a) that has not been abandoned, held invalid, revoked, held or rendered unenforceable or lost through interference and (b) the claims of which would be infringed by Licensee’s practice of the Harvard Patent Rights and/or Joint Patent Rights in the making, using, offering for sale, selling or importation of Licensed Products.

1.14. “Initiation” shall mean, with respect to a Phase I Clinical Trial, Phase II Clinical Trial or Phase III Clinical Trial, the administration of the first dose to the first patient in such Clinical Trial.

1.15. “Joint Inventions” shall mean all inventions and discoveries made jointly by (a) one or more employees (or others on behalf) of Licensee and (b) Dr. Myers (so long as he is an employee of Harvard) in the performance of services for Licensee relating to tetracycline chemistry, including methods of synthesis and novel analogs of tetracycline.

1.16. “Joint Patent Rights” shall mean (a) any and all patents and patent applications claiming any Joint Inventions; (b) any United States or foreign patent or patent application that claims priority to and is a divisional, continuation, reissue, renewal, reexamination, substitution or extension of at least one of the patents or patent applications identified in (a); (c) any patents issuing on any of the patent applications identified in (a) or (b) and any reissues, renewals, reexaminations, substitutions or extensions thereof; and (d) any claim of a continuation-in-part application or patent that is entitled to the priority date of, and is directed specifically to subject matter specifically described in, at least one of the patents or patent applications identified in (a), (b) or (c).

1.17. “Licensed Patent Rights” shall mean the Harvard Patent Rights and Harvard’s interest in the Joint Patent Rights.

1.18. “Licensed Product” shall mean any product, the manufacture, use, offer for sale, sale or importation of which falls within the scope of a Valid Claim.

1.19. “Major European Country” shall mean any of the following: (a) France, Germany, Italy or the United Kingdom; or (b) the European Union as a whole.

1.20. “Marketing Authorization” shall mean all approvals from the relevant Regulatory Authority necessary to market and sell a Licensed Product in a country.

1.21. “NDA” shall mean a New Drug Application, Biologies License Application, Worldwide Marketing Application, Marketing Authorization Application, filing pursuant to Section 510(k) of the United States Federal Food, Drug, and Cosmetic Act, or similar application or submission for Marketing Authorization of a Licensed Product filed with a Regulatory Authority to obtain marketing approval for a biological pharmaceutical or diagnostic product in that country or in that group of countries.

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1.22. “Net Sales” shall mean the gross amount billed or invoiced by or on behalf of Licensee, its Affiliates and Sublicensees (in each case, the “Invoicing Entity”) on sales, leases or other transfers of Licensed Products, less the following to the extent applicable on such sales, leases or other transfers of Licensed Products and not previously deducted from the gross invoice price: (a) customary trade, quantity, and cash discounts to the extent actually allowed and taken; (b) amounts actually repaid or credited by reason of rejection or return of any previously sold, leased or otherwise transferred Licensed Products and uncollectible portions of billed or invoiced amounts with respect to any previously sold, leased or otherwise transferred Licensed Products; (c) rebates, chargebacks, retroactive price reductions, allowances and fees actually paid or credited to customers, wholesalers, distributors, third party payors, governmental agencies, administrators and contractees with respect to Licensed Products sold, leased or otherwise transferred; (d) transportation, freight and insurance charges that are paid by or on behalf of the Invoicing Entity; and (e) to the extent separately stated on purchase orders, invoices, or other documents of sale, any sales, value added or similar taxes, custom duties or other similar governmental charges levied directly on the production, sale, transportation, delivery, or use of a Licensed Product that are paid by or on behalf of the Invoking Entity, but not including any tax levied with respect to income; provided that:

(i) in any transfers of Licensed Products among an Invoicing Entity, Affiliates of such Invoicing Entity and Sublicensees, not for the purpose of resale by any such Affiliate or Sublicensee, Net Sales shall be equal to the fair market value of the Licensed Products so transferred, assuming an arm’s length transaction made in the ordinary course of business; and

(ii) in the event that an Invoicing Party receives non-monetary consideration for any Licensed Products or in the case of transactions not at arm’s length with a non-Affiliate of such Invoicing Entity that is not a Sublicensee, Net Sales shall be calculated based on the fair market value of such consideration or transaction, assuming an arm’s length transaction made in the ordinary course of business.

Sales of Licensed Products by an Invoicing Party to an Affiliate of such Invoicing Party or to a Sublicensee for resale by such Affiliate or Sublicensee shall not be deemed Net Sales and Net Sales shall be determined based on the gross amount invoiced or billed by such Affiliate or Sublicensee on resale to an independent third party purchaser.

In the event that a Licensed Product is sold in any country in the form of a Combination Product, Net Sales of such Combination Product will be adjusted by multiplying actual Net Sales of such Combination Product (i.e., Net Sales as determined above without regard to this paragraph) in such country by the fraction A/(A+B), where A is the average invoice price in such country of a Licensed Product containing the same strength of Covered Component(s) that is included in such Combination Product sold without the Non-Covered Components, if sold separately in such country, and B is the average invoice price of the Non-Covered Component(s) that is included in such Combination Product in such country, if sold separately in such country.

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If, in a specific country, either the Covered Component(s) or the Non-Covered Component(s) is not sold separately, the relative value of the Covered Component(s) and the Non-Covered Component(s) in the Combination Product shall be negotiated in and agreed upon in good faith by the parties in order to determine the appropriate ratio for calculating Net Sales with respect to such Combination Product in such country.

1.23. “Non-Covered Component” shall mean a clinically active component of a product that is not a Covered Component.

1.24. “Non-Royalty Sublicense Income” shall mean any payments or other consideration that Licensee or any of its Affiliates receives in connection with a Sublicense, other than royalties based on sales, leases or other transfers of Licensed Products by a Sublicensee. In the event that Licensee or an Affiliate of Licensee receives non-monetary consideration in connection with a Sublicense or in the case of transactions not at arm’s length, Non-Royalty Sublicense Income shall be calculated based on the fair market value of such consideration or transaction, assuming an arm’s length transaction made in the ordinary course of business. Non-Royalty Sublicense Income shall not include payments specifically committed to cover future costs to be actually incurred by Licensee or any of its Affiliates (including customary overhead) in the performance of research and development activities to be performed by Licensee or any of its Affiliates in connection with a Licensed Product or a product expected to become a Licensed Product.

1.25. “Phase I Clinical Trial” shall mean a human clinical trial in any country that would satisfy the requirements of 21 CFR 312.21(a).

1.26. “Phase II Clinical Trial” shall mean a human clinical trial in any country that would satisfy the requirements of 21 CFR 312.21(b).

1.27. “Phase III Clinical Trial” shall mean a human clinical trial in any country that would satisfy the requirements of 21 CFR 312.21(c).

1.28. “Regulatory Authority” shall mean any applicable government regulatory authority involved in granting approvals for the manufacturing, marketing, reimbursement and/or pricing of a Licensed Product, including, in the United States, the FDA.

1.29. “Relative Contribution Rate” shall mean the relative contribution of Dr. Myers in conceiving, making and/or reducing to practice a Joint Invention. Promptly after disclosure of a Joint Invention under Section 2.4 or 2.5, the parties will negotiate in good faith to agree upon the Relative Contribution Rate, which shall not exceed [**] percent ([**]%). If the parties are unable to agree upon the Relative Contribution Rate within [**] days of such disclosure, the matter will be referred to an independent patent counsel appointed by and mutually acceptable to the parties, who will determine the Relative Contribution Rate (not to exceed [**] percent ([**]%)).

1.30. “Sublicense” shall mean: (a) any right granted, license given, or agreement entered into by Licensee to or with any other person or entity (or by a Sublicensee to or with a further Sublicensee permitted by Section 4.2.2.4), under or with respect to or permitting any use of any of the Licensed Patent Rights or otherwise permitting the development, manufacture,

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marketing, distribution, use and/or sale of Licensed Products; (b) any option or other right granted by Licensee to any other person or entity (or by a Sublicensee to a further Sublicensee permitted by Section 4.2.2.4) to negotiate for or receive any of the rights described under clause (a); or (c) any standstill or similar obligation undertaken by Licensee toward any other person or entity (or by a Sublicensee toward a further Sublicensee permitted by Section 4.2.2.4) not to grant any of the rights described in clause (a) or (b) to any third party; in each case regardless of whether such grant of rights, license given or agreement entered into is referred to or is described as a sublicense. For clarity, “Sublicense” does not include any implied license that may be deemed to be granted as part of a sale of a License Product.

1.31. “Sublicensee” shall mean any person or entity granted a Sublicense.

1.32. “Third Party Proposed Product” shall mean an actual or potential Licensed Product (a) that is for a therapeutic category (e.g., infectious diseases, inflammatory conditions and oncological conditions) for which no Licensed Product is being developed or commercialized by Licensee, any Affiliate of Licensee or any Sublicensee and (b) that does not contain or consist of any Covered Component that is included in a Licensed Product that is being clinically developed or commercialized by Licensee, any Affiliate of Licensee or any Sublicensee. For the avoidance of doubt, sub-categories within the same general therapeutic category shall be considered the same therapeutic category (e.g., infectious diseases shall include subcategories such as bacterial diseases and fungal diseases).

1.33. “Valid Claim” shall mean: (a) a claim of an issued and unexpired patent within the Harvard Patent Rights or, except as excluded pursuant to Section 3.4.2, Joint Patent Rights that has not been (i) held permanently revoked, unenforceable, unpatentable or invalid by a decision of a court or governmental body of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, (ii) rendered unenforceable through disclaimer or otherwise, (iii) abandoned, or (iv) lost through an interference proceeding; (b) a pending claim of a pending patent application within the Harvard Patent Rights (in a particular country) that (i) has been asserted and continues to be prosecuted in good faith, (ii) has not been abandoned or finally rejected without the possibility of appeal or refiling and (iii) has not remained un-issued for a period of [**] or more years from the date of issuance of the first substantive patent office action considering the patentability of such claim by the applicable patent office in such country, provided that if after the earliest possible date for requesting examination in such country Harvard fails to request examination by such patent office within [**] days after Licensee requests Harvard to do so, such [**]-year period shall run from the date of Licensee’s request that Harvard request examination; or (c) except as excluded pursuant to Section 3.4.2, a pending claim of a patent application within the Joint Patent Rights.

2. Title; Disclosure.

2.1. The entire right, title and interest in Harvard Inventions shall be owned solely by Harvard.

2.2. The entire right, title and interest in Joint Inventions shall be owned jointly by Harvard and Licensee.

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2.3. All determinations of inventorship under this Agreement shall be made in accordance with United States patent law. In case of dispute between Harvard and Licensee over inventorship, a mutually acceptable outside patent counsel shall make the determination of the inventor(s) by applying the standards contained in United States patent law.

2.4. Harvard shall disclose to Licensee in a confidential writing the development, making, conception or reduction to practice of any Harvard Inventions or Joint Inventions of which it becomes aware, promptly after its receipt of an invention disclosure form from Dr. Myers.

2.5. Licensee shall disclose to Harvard’s Office of Technology Development in a confidential writing the development, making, conception or reduction to practice of any Harvard Inventions or Joint Inventions promptly after it becomes aware thereof.

2.6. Dr. Myers shall disclose to Licensee and Harvard’s Office of Technology Development in a confidential writing the development, making, conception or reduction to practice of any Harvard Inventions or Joint Inventions promptly after he becomes aware thereof.

2.7. Any consulting or other agreement pursuant to which Dr. Myers performs services for or on behalf of Licensee (so long as he is an employee of Harvard) (a “Consulting Agreement”) shall be consistent with and subordinate to the provisions of this Article 2. Any such Consulting Agreement shall require Dr. Myers to assign his rights in Harvard Inventions and Joint Inventions in a manner consistent with the provisions of this Article 2 and shall allow Dr. Myers to make the disclosures contemplated by Section 2.6.

2.8. In the case of any discrepancy between Article 2 of this Agreement and any Consulting Agreement, the terms of this Agreement shall prevail; provided that (a) Licensee shall have no liability for or obligation to enforce Dr. Myers’ obligations hereunder and (b) Licensee’s sole and exclusive liability to Harvard and Harvard’s sole and exclusive remedy against Licensee for such discrepancy shall be for Licensee to acknowledge that the terms of this Agreement prevail over the noncompliant provisions of such Consulting Agreement and to take reasonable steps to amend the Consulting Agreement to render it consistent with this Agreement.

3. Patent Filing, Prosecution and Maintenance.

3.1. Harvard Patent Rights. Harvard shall be responsible for the preparation, filing, prosecution, protection and maintenance of all Harvard Patent Rights, using patent counsel reasonably acceptable to Licensee. With respect to Harvard Patent Rights, Harvard shall: (a) use independent patent counsel reasonably acceptable to Licensee and instruct such patent counsel to furnish the Licensee with copies of all correspondence relating to the Harvard Patent Rights from the United States Patent and Trademark Office (USPTO) and any other patent office, as well as copies of all proposed responses to such correspondence in time for Licensee to review and comment on such response; (b) give Licensee an opportunity to review the text of each patent application before filing; (c) consult with Licensee with respect thereto; (d) supply Licensee with a copy of the application as filed, together with notice of its filing date and serial number; (e) keep Licensee advised of the status of actual and prospective patent filings; and (f) provide advance copies of any papers related to the filing, prosecution, protection and maintenance of such patent filings. Harvard shall give Licensee the opportunity to provide comments on and make requests of Harvard concerning the preparation, filing, prosecution, protection and maintenance of the Harvard Patent Rights, and shall consider such comments and requests in good faith.

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3.2. Joint Patent Rights. Licensee shall have the first right to prepare, file, prosecute, protect and maintain Joint Patent Rights, at its cost; provided, however, that Licensee may elect to waive such right on a case-by-case basis and if so, Licensee shall notify Harvard promptly in writing and Harvard shall have the right, but not the obligation, to prepare, file, prosecute, protect and maintain such Joint Patent Rights. With respect to Joint Patent Rights, the filing party shall: (a) use independent patent counsel reasonably acceptable to the non-filing party and instruct such patent counsel to furnish the non-filing party with copies of all correspondence relating to the Joint Patent Rights from the USPTO and any other patent office, as well as copies of all proposed responses to such correspondence in time for the other party to review and comment on such response; (b) give the non-filing party an opportunity to review the text of each patent application before filing; (c) consult with the non-filing party with respect thereto; (d) supply the non-filing party with a copy of the application as filed, together with notice of its filing date and serial number; (e) keep the non-filing party advised of the status of actual and prospective patent filings; and (f) provide advance copies of any papers related to the filing, prosecution, protection and maintenance of such patent filings. The filing party shall give the non-filing party the opportunity to provide comments on and make requests of the filing party concerning the preparation, filing, prosecution, protection and maintenance of the Joint Patent Rights, and shall consider such comments and requests in good faith.

3.3. Expenses. Subject to Section 3.4 below, Licensee shall reimburse Harvard for all documented, out-of-pocket expenses incurred by Harvard pursuant to this Article 3 within [**] days after Harvard invoices Licensee. In addition, Licensee shall reimburse Harvard for all documented, out-of-pocket expenses incurred by Harvard prior to the execution of this Agreement with respect to the preparation, filing, prosecution, protection and maintenance of Harvard Patent Rights (estimated to be approximately [**] U.S. Cents ($[**])) within [**] days after the date on which the financing described in Section 11.2.2 below closes.

3.4. Abandonment. Should Licensee decide that it does not wish to pay for the preparation, filing, prosecution, protection or maintenance of any Harvard Patent Rights and/or Joint Patent Rights in a particular country (“Abandoned Patent Rights”), Licensee shall provide Harvard with prompt written notice of such election. Upon receipt of such notice by Harvard, Licensee shall be released from its obligation to reimburse Harvard for the expenses incurred thereafter as to such Abandoned Patent Rights; provided, however, that expenses authorized prior to the receipt by Harvard of such notice shall be deemed incurred prior to the notice.

3.4.1. Effect of Abandonment of Harvard Patent Rights. In the event of Licensee’s abandonment of any Harvard Patent Rights (“Abandoned Harvard Patent Rights”), any license granted by Harvard to Licensee hereunder with respect to such Abandoned Harvard Patent Rights will terminate, and Licensee will have no rights whatsoever to exploit such Abandoned Harvard Patent Rights. Harvard shall then be free, without further notice or obligation to Licensee, to grant rights in and to such Abandoned Harvard Patent Rights to third parties. Such Abandoned Harvard Patent Rights shall cease to constitute Harvard Patent Rights.

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3.4.2. Effect of Abandonment of Joint Patent Rights. In the event of Licensee’s abandonment of any Joint Patent Rights (“Abandoned Joint Patent Rights”), Harvard, in its sole discretion, may choose to terminate any license granted by Harvard to Licensee hereunder with respect to such Abandoned Joint Patent Rights. If Harvard exercises its right to terminate and continues to pay for the preparation, filing, prosecution, protection and maintenance of such Abandoned Joint Patent Rights, it thereafter shall have the right to practice and exploit the inventions claimed in such Abandoned Joint Patent Rights without any duty to account to Licensee or any obligation to obtain any consent or approval of Licensee for such use and exploitation. Harvard also shall then be free, without further notice or obligation to Licensee, and Licensee hereby grants Harvard an exclusive license, to grant rights in and to such Abandoned Joint Patent Rights to third parties; provided, however, that Licensee shall have (and Harvard hereby grants Licensee) the right, without further notice or obligation to Harvard, to practice and exploit the inventions claimed in such Abandoned Joint Patent Rights in connection with Licensee’s development and commercialization of a Licensed Product and to grant rights in and to such Abandoned Joint Patent Rights to third parties in connection with any license of a Licensed Product developed by or on behalf of Licensee. The claims of any such Abandoned Joint Patent Rights shall cease to constitute Valid Claims.

3.5. No Warranty. Nothing contained herein shall be deemed to be a warranty by either party that it can or will be able to obtain patents on patent applications included in the Harvard Patent Rights or Joint Patent Rights, or that any of the Harvard Patent Rights or Joint Patent Rights will afford adequate or commercially worthwhile protection.

3.6. Small Entity Designation. If Licensee, any Sublicensee and/or any holder of an option to obtain a Sublicense does not qualify, or at any point during the term of this Agreement ceases to qualify, as a “small entity’” as provided by the USPTO, Licensee shall so notify Harvard immediately, in order to enable Harvard to comply with USPTG regulations regarding payment of fees with respect to Harvard Patent Rights and Joint Patent Rights.

4. License Grant.

4.1. Licenses.

4.1.1. Harvard Patent Rights. Subject to the terms and conditions set forth in this Agreement, Harvard hereby grants to Licensee an exclusive (except as set forth in clauses (a) and (b) below), worldwide, royalty-bearing license under the Harvard Patent Rights solely to develop, make, have made, use, market, offer for sale, sell and import Licensed Products; provided, however, that:

(a) Harvard shall retain the right to make and use Licensed Products, and to grant licenses to other not-for-profit research organizations to make and use Licensed Products, for internal research, teaching and other educational purposes and not for the purpose of commercial manufacture, distribution or provision of services for a fee; and

(b) the U.S. federal government shall retain rights in the Licensed Patent Rights pursuant to 35 USC §§200-212, 37 CFR §401 et seq. and applicable governmental implementing regulations, and any right granted in this Agreement greater than that permitted under 35 USC §§200-212 or 37 CFR §401 et seq. shall be subject to modification as may be required to conform to the provisions of those statutes and regulations.

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4.1.2. Joint Patent Rights. Subject to the terms and conditions set forth in this Agreement, Harvard hereby grants to Licensee an exclusive, worldwide, royalty-bearing license under Harvard’s interest in the Joint Patent Rights solely to develop, make, have made, use, market, offer for sale, sell and import Licensed Products.

4.2. Sublicense.

4.2.1. Sublicense Grant. Licensee shall be entitled to grant Sublicenses to third parties under the licenses granted pursuant to Section 4.1 if the contemplated Sublicense complies with the terms of this Section 4.2. Any such Sublicense shall be on terms and conditions in compliance with and not inconsistent with the terms of this Agreement. Such Sublicenses shall only be made for consideration and in bona-fide arm’s length transactions.

4.2.2. Sublicense Agreements. Sublicenses shall be granted only pursuant to written agreements, which shall be subject and subordinate to the terms and conditions of this Agreement. Such Sublicense agreements shall contain, among other things, provisions to the following effect:

4.2.2.1. All provisions necessary to ensure Licensee’s ability to perform its obligations under this Agreement, including without limitation its obligations under Sections 6.3, 6.4, 6.5, 7.1.1, 7.3, 9.1 and 12.1;

4.2.2.2. A section substantially the same as Article 10, which also shall state that the Indemnitees (as defined in Article 10) are intended third party beneficiaries of such Sublicense agreement for the purpose of enforcing such indemnification and insurance provisions;

4.2.2.3. In the event of termination of the licenses set forth in Section 4.1 above (in whole or in part (e.g., termination in a particular country)), any existing Sublicense shall terminate to the extent such licenses terminate; provided, however, that, for each Sublicensee, upon termination of a Sublicense agreement, if the Sublicensee is not then in breach of the Sublicense such that Licensee would have the right to terminate such Sublicense agreement, such Sublicensee shall have the right to seek a license from Harvard. Harvard agrees to negotiate such licenses in good faith under reasonable terms and conditions, which shall not impose any representations, warranties, obligations or liabilities on Harvard that are not included in this Agreement;

4.2.2.4. The Sublicensee shall not be entitled to sublicense its rights under such Sublicense agreement without Harvard’s prior written consent; provided that , if the Sublicensee is a major pharmaceutical company, the Sublicensee may grant further Sublicenses with respect to Licensed Products that the Sublicensee is developing and/or commercializing in at least one of (a) the United States, (b) any Major European Country or (c) Japan, in each case subject to Sections 4.2.2.1, 4.2.2.2, 4.2.2.3 and 4.2.2.5, without Harvard’s consent; and

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4.2.2.5. The Sublicensee shall not be entitled to assign the Sublicense agreement without the prior written consent of Harvard, except that Sublicensee may assign the Sublicense agreement to an Affiliate or to a successor in connection with the merger, consolidation, or sale of all or substantially all of its assets or that portion of its business to which the Sublicense agreement relates; provided, however, that any permitted assignee agrees in writing in a manner reasonably satisfactory to Harvard to be bound by the terms of such Sublicense agreement.

4.2.3. Delivery of Sublicense Agreement. Licensee or Sublicensee shall furnish Harvard with a fully executed copy of any Sublicense agreement or further Sublicense agreement under Section 4.2.2.4, promptly after its execution. Harvard shall keep any such copies of Sublicense agreements in its confidential files and shall use them solely for the purpose of monitoring Licensee’s and Sublicensees’ compliance with their obligations hereunder and enforcing Harvard’s rights under this Agreement.

4.2.4. Breach by Sublicensee. Any act or omission by a Sublicensee that would have constituted a breach of this Agreement had it been an act or omission by Licensee, shall constitute a breach of this Agreement.

4.3. Improvements. In the future event that Harvard owns and controls patents and/or patent applications for which Dr. Myers is an inventor that (a) are not Harvard Patent Rights or Joint Patent Rights and (b) include claims that are dominated by any Valid Claims of the Harvard Patent Rights described in Section 1.10(a) – (e), Licensee may notify Harvard in writing that it wishes to obtain a license under such patents and/or patent applications solely with respect to those claims that are dominated by such Valid Claims of the Harvard Patent Rights described in Section 1.10(a) – (e). Harvard will grant Licensee a license under such claims by amending this Agreement to include such claims in the definition of Licensed Patent Rights if (i) Harvard is not, at the time of its receipt of Licensee’s notice, subject to any legal or pre-existing contractual obligations or restraints that would prevent it from granting the requested license and (ii) either (A) the inventors of the invention claimed in such claims (and, in the case of non-Harvard inventors, the institutions with which such inventors are affiliated) do not reasonably object to the grant of the requested license based on an argument that the terms of the license contemplated by this Section 4.3, when considered from the perspective of the parties as of the date of such license, do not provide fair value to Harvard for the license of such patent rights (and, consequently, such inventors’ financial interest in such patent rights will be adversely affected) or (B) if any such inventors or institutions do object, the neutral third party appointed by the parties pursuant to the immediately following sentence does not affirmatively determine that the terms of the license contemplated by this Section 4.3, when considered from the perspective of the parties as of the date of such license, do not provide fair value to Harvard for the license of such patent rights. If Harvard relies upon clause (ii) above to refuse to grant Licensee a license under such claims, Licensee will have the right to seek a determination from a neutral third party (mutually acceptable to the parties) as to whether the terms of the license contemplated by this Section 4.3, when considered from the perspective of the parties as of the date of such license, provide fair value to Harvard for the license of such patent rights. Licensee shall not be required to pay any additional upfront consideration for such license, except for a license issuance fee to be agreed upon by the parties, which will not exceed [**] U.S. Dollars ($[**]). The other financial terms of this Agreement (e.g., milestone payments, royalty

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payments and payments on account of Non-Royalty Sublicense Income) will apply to the requested license (i.e., other than the to-be-agreed upfront consideration, the effect of such requested license shall be to include such additional patents and/or patent applications in Harvard Patent Rights licensed to Licensee under this Agreement, without modifying the economic terms of this Agreement).

4.4. Future Inventions. In the future event that Harvard owns and controls patents and/or patent applications for which Dr. Myers is an inventor that (a) are not dominated by any Valid Claims of the Harvard Patent Rights described in Section 1.10(a) – (e) and (b) include claims with respect to tetracycline chemistry, including methods of synthesis and novel analogs of tetracycline, Licensee may notify Harvard in writing that it wishes to obtain a license under such patents and/or patent applications solely with respect to claims covering tetracycline chemistry, including methods of synthesis and novel analogs of tetracycline. Harvard will enter into good faith negotiations with Licensee for a license under such claims if (a) Harvard is not, at the lime of its receipt of Licensee’s notice, subject to any legal, public policy or pre-existing contractual obligations or restraints that would prevent it from granting the requested license and has not already commenced negotiations for any agreement that would impose such obligations or restraints and (b) Harvard believes that Licensee is an appropriate party to which to grant the requested license (taking into account Licensee’s resources and the potential applications for such patent rights).

4.5. Third Party Proposed Products.

4.5.1. If, at any time following the [**] anniversary of the Effective Date of this Agreement, a third party makes a bona fide proposal to Harvard for developing a Third Party Proposed Product and Harvard is interested in having such Third Party Proposed Product developed and commercialized, Harvard shall notify Licensee of and shall provide Licensee with information regarding the third party’s proposal. Within [**] days of the receipt of such notification from Harvard, Licensee shall notify Harvard whether it is interested in developing such Third Party Proposed Product

4.5.2. If Licensee notifies Harvard within such [**] day period that it is interested in developing such Third Party Proposed Product, the parties will agree upon a development plan with respect to such Third Party Proposed Product, which development plan shall be similar to the Development Plan with respect to other Licensed Products developed by Licensee, subject to necessary adjustments, and will include reasonable milestones. In such case, Licensee shall be obligated (a) to use commercially reasonable efforts to develop and commercialize the Third Party Proposed Product in accordance with such new development plan and (b) to meet the milestones with respect to the Third Party Proposed Product.

4.5.3. In the event Licensee thereafter fails to comply in any material respect with such mutually agreed development and commercialization obligations, and fails to cure such noncompliance after notice from Harvard within the time periods specified in Section 11.2.3.2, Harvard shall be entitled to terminate the license granted in this Agreement under Harvard Patent Rights with respect to such Third Party Proposed Product and shall be free to grant a third party a license under any relevant Harvard Patent Rights solely to develop, make, have made, use, market, offer for sale, sell, and import such Third Party Proposed Product.

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4.5.4. If Licensee states in its notification to Harvard that it is not interested in developing such Third Party Proposed Product but that it wishes to grant a Sublicense under any relevant Harvard Patent Rights to such third party with respect to such Third Party Proposed Product, Licensee shall have [**] days (or such longer time as shall be agreed to by the parties in writing) to negotiate and enter into such a Sublicense agreement with such third party; provided, however, that if Licensee demonstrates that it and such third party have entered into a term sheet with respect to such a Sublicense agreement during such [**] days, Licensee shall be entitled to extend that period for the execution of a binding Sublicense agreement by an additional [**] days.

4.5.5. If Licensee fails to enter into such a Sublicense agreement within such [**] day period or [**] day period, as applicable, Licensee shall promptly (but in any event within [**] days of the end of such period) provide Harvard in writing an explanation for such failure along with the proposed terms offered by Licensee to Sublicensee. If Harvard determines in its good faith judgment that the terms offered by Licensee to such third party were not commercially reasonable, Harvard shall notify Licensee of such determination and provide Licensee with an additional [**] days to enter into a Sublicense with such third party. If Licensee fails to enter into an agreement with such third party within such additional [**] day period, then Harvard shall be free to grant such third party a license under the relevant Harvard Patent Rights solely to develop, make, have made, use, market, offer for sale, sell and import such Third Party Proposed Product; provided, however, that (a) Harvard shall not grant such third party license on terms more favorable to the third party than the terms of the license granted to Licensee in this Agreement with respect to such Third Party Proposed Product unless Harvard first amends this Agreement to provide Licensee with such more favorable terms (and after such amendment provides Licensee with a notice pursuant to Section 4.5.1 that commences a [**] day notice period thereunder during which Licensee may elect to develop such Third Party Proposed Product, in which case Sections 4.5.2 and 4.5.3 will apply) and (b) Harvard must grant such third party license within [**] days after the end of the [**] day period referenced above. The license granted to Licensee in this Agreement under Harvard Patent Rights with respect to such Third Party Proposed Product shall terminate automatically on the effective date of such third party license.

4.6. No Other Grant of Rights. Except as expressly provided in this Agreement, nothing in this Agreement shall be construed to confer any ownership interest, license or other rights upon Licensee by implication, estoppel or otherwise as to any technology, intellectual property rights, products or biological materials of Harvard or any other entity, regardless of whether such technology, intellectual property rights, products or biological materials are dominant, subordinate or otherwise related to any Licensed Patent Rights.

5. Development and Commercialization.

5.1. Diligence. Licensee shall use commercially reasonable efforts, and shall cause its Sublicensees to use commercially reasonable efforts: (i) to develop Licensed Products in accordance with the Development Plan; (ii) to introduce Licensed Products into the commercial market; and (iii) to market Licensed Products following such introduction into the market. In addition, Licensee, by itself or through its Affiliates or Sublicensees, also shall achieve each of the Development Milestones within the time periods specified in Exhibit 1.5. Licensee’s sole and exclusive liability and Harvard’s sole and exclusive remedy for any breach of this Section 5.1 shall be the termination right set forth in Section 11.2.3.1, to the extent applicable.

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5.2. Adjustment of Development Plan. Licensee shall be entitled, from time to time, to make such adjustments to the then applicable Development Plan as Licensee believes, in its good faith judgment, are needed in order to improve Licensee’s ability to meet the Development Milestones. Licensee shall provide Harvard with copies of any such adjusted Development Plans.

5.3. Reporting. Within [**] days after the end of each calendar year, Licensee shall furnish Harvard with a written report summarizing its, its Affiliates, and its Sublicensees’ efforts during the prior year to develop and commercialize Licensed Products, including without limitation: (i) research and development activities, including in reasonable detail medicinal chemistry efforts and animal efficacy and toxicity studies relating to potential Licensed Products; (ii) commercialization efforts; and (iii) marketing efforts. Each report shall contain a sufficient level of detail for Harvard to assess whether Licensee is in compliance with its obligations under Section 5.1.

5.4. Failure. Both parties agree that timely achievement of Development Milestones is subject to considerable uncertainty, given the novelty of the technology embodied in the Licensed Patent Rights, territorial or legal restrictions on the use of pharmaceutical products, the regulatory climate and approval process, and pricing or other government restrictions on certain pharmaceutical products. Accordingly, in the event Licensee fails to achieve any Development Milestone, the parties agree to discuss and, if appropriate, revise said milestone by adding a period of up to [**] months to achieve such milestone, upon Licensee’s written notice to Harvard, accompanied by an explanation for the reasons for such failure and a detailed written plan for promptly achieving such milestones. If Licensee does not provide Harvard with a reasonable basis for its failure to meet a Development Milestone (and lack of finances shall not constitute reasonable basis for such failure) or does not provide Harvard with a detailed written plan for promptly achieving such milestones, Harvard shall notify Licensee in writing of Licensee’s failure and shall allow Licensee [**] days to cure its failure. Licensee’s failure to cure such delay within such [**]-day period shall constitute a material breach of this Agreement and Harvard shall have the right to terminate this Agreement forthwith.

6. Consideration for Grant of License

6.1. License Issuance Fee. As partial consideration for the license granted hereunder, Licensee shall pay Harvard a non-refundable license fee of [**] U.S. Dollars ($[**]) within [**] days after the date on which Licensee completes a Qualifying Financing (as defined in Section 11.2.2 below).

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6.2. Equity.

6.2.1. Initial Grant. As partial consideration for the license granted hereunder, and subject to the execution and delivery of an investment representation letter by Harvard in substantially the form attached hereto as Exhibit 6.2.1, within [**] days after the date on which Licensee completes a Qualifying Financing (as defined in Section 11.2.2 below), Licensee shall issue to Harvard such number of shares of common stock (the “Shares”) of Licensee that constitutes the greater of:

(a) [**] shares of common stock, adjusted for any stock splits and similar events; or

(b) [**] percent ([**]%) of the outstanding common stock of Licensee, on a Fully Diluted Basis, as of the date of completion of the Qualifying Financing, after giving effect to such issuance to Harvard and to the sale in the Qualifying Financing of shares of capital stock having an aggregate purchase price, which together with the aggregate purchase price received by the Company from any investment in its capital stock made prior to the Qualifying Financing, does not exceed the Funding Threshold (i.e., assuming only such shares issued in the Qualifying Financing that are necessary to achieve the Funding Threshold are then outstanding). For purposes of illustration, if the Qualifying Financing were to involve the sale of shares of capital stock having an aggregate purchase price of $[**] and no cash investment in Licensee’s capital stock had been made prior to the Qualifying Financing, then the calculation above in this clause (b) shall only apply to and shall only include the shares of capital stock sold in the Qualifying Financing having an aggregate purchase price of $[**] and shall not include the additional shares of capital stock sold in the Qualifying Financing (i.e., Harvard’s shareholdings will be diluted with respect to the additional shares of capital stock sold in the Qualifying Financing).

6.2.2. Representations and Warranties. Licensee hereby represents and warrants to Harvard that:

6.2.2.1. The capitalization table attached hereto as Exhibit 6.2.2.1 (the “Cap Table”) sets forth all of the outstanding capital stock of Licensee on a Fully Diluted Basis as of the Effective Date after assuming and giving effect to the Shares to be issued to Harvard under Section 6.2.1;

6.2.2.2. Other than as set forth in the Cap Table, as of the Effective Date, there are no outstanding shares of capital stock, convertible securities, outstanding warrants, options or other rights to subscribe for purchase or acquire from Licensee any capital stock of Licensee and there are no contracts or binding commitments providing for the issuance of, or the granting of rights to acquire, any capital stock of Licensee or under which Licensee is obligated to issue any of its securities; and

6.2.2.3. The Shares, when issued pursuant to the terms hereof, shall, upon such issuance, be duly authorized, validly issued, fully paid and nonassessable.

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6.2.3. Anti-Dilution. If, at any time, after the initial issuance of Shares pursuant to Section 6.2.1 and prior to the achievement of the Funding Threshold (as defined below), Licensee issues Additional Securities (as defined below) that would cause the common stock issued to Harvard under this Article 6 to represent less than [**] percent ([**]%) of Licensee’s outstanding stock on a Fully-Diluted Basis (a “Diluting Issuance”), then, within [**] days after the date of such Diluting Issuance, subject to the execution and delivery of an investment representation letter by Harvard in substantially the form attached hereto as Exhibit 6.2.1, Licensee shall issue additional shares of common stock to Harvard such that after giving effect to such issuance to Harvard, the common stock issued to Harvard under this Article 6 shall represent [**] percent ([**]%) of Licensee’s outstanding stock on a Fully Diluted Basis. Such issuances to Harvard shall continue until such time and with respect to those securities as are issued by Licensee prior to Licensee achieving the Funding Threshold. Upon achievement of the Funding Threshold, no additional shares shall be due to Harvard pursuant to this Section 6.2.3.

6.2.4. Definitions. The following terms shall have the following meanings:

(a) “Additional Securities” shall mean shares of capital stock, convertible securities, warrants, options or other rights to subscribe for, purchase or acquire from Licensee any capital stock of Licensee

(b) “Fully Diluted Basis” shall mean, as of a specified date, the number of shares of common stock of Licensee then outstanding (assuming conversion of all other classes of stock into common stock) plus the number of shares of common stock of Licensee issuable upon exercise or conversion of then outstanding convertible securities (other than other classes of stock), options, rights or warrants of Licensee (which shall be determined without regard to whether such securities are then vested, exercisable or convertible).

(c) “Funding Threshold” shall mean a total investment from and after the incorporation of Licensee of [**] U.S. Dollars ($[**]) in cash in exchange for Licensee’s capital stock.

6.3. Milestone Payments.

6.3.1. As partial consideration for the license granted hereunder, Licensee shall pay Harvard the following milestone payments with respect to each Licensed Product, regardless of whether such milestones are achieved by Licensee, an Affiliate of Licensee or a Sublicensee:

6.3.1.1. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;

6.3.1.2. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;

6.3.1.3. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;

6.3.1.4. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;

6.3.1.5. Two Million U.S. Dollars ($2,000,000) upon Initiation of a Phase III Clinical Trial with respect to such Licensed Product;

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6.3.1.6. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;

6.3.1.7. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;

6.3.1.8. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;

6.3.1.9. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product;

6.3.1.10. [**] U.S. Dollars ($[**]) upon [**] with respect to such Licensed Product; and

6.3.1.11. [**] U.S. Dollars ($[**]) upon [**].

Licensee shall notify Harvard in writing within [**] days following the achievement of each milestone described in this Section 6.3.1, and shall make the appropriate milestone payment within [**] days after the achievement of such milestone. Each milestone payment set forth in this Section 6.3.1 shall be payable no more than once per Licensed Product.

For purposes of this Section 6.3.1, [**] shall include [**] by operation of rule or regulation due to the [**].

For purposes of this Section 6.3.1, if all active pharmaceutical ingredient(s) in a Licensed Product that are Covered Component(s) are the same (irrespective of formulation differences that are not deemed by the applicable Regulatory Authority to result in different active pharmaceutical ingredient(s)) as active pharmaceutical ingredient(s) in Licensed Products for which Licensee has already paid a given milestone payment under this Section 6.3.1, then Licensee shall not be required to pay such milestone payment with respect to such Licensed Product.

6.3.2. The milestones set forth in Section 6.3.1 are intended to be successive, except that the [**] milestones set forth in Sections 6.3.1.6, 6.3.1.7, 6.3.1.8, 6.3.1.9, 6.3.1.10 and 6.3.1.11 are not intended to be successive (i.e., the achievement of such milestones in [**] may occur in any order). In the event that a Licensed Product is not required to [**] associated with a particular milestone ( “Skipped Milestone” ), such Skipped Milestone shall be deemed to have been achieved upon the achievement by such Licensed Product of the next successive milestone ( “Achieved Milestone” ). Payment for any Skipped Milestone that is owed in accordance with the provisions of this Section 6.3.2 shall be due within [**] days after the achievement of the Achieved Milestone.

6.4. Net Sales.

6.4.1. Royalties . As partial consideration for the license granted hereunder, Licensee shall pay Harvard an amount equal to the following percentages of Net Sales of Licensed Products:

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6.4.1.1. [**] percent ([**]%) of calendar year annual Net Sales up to [**] U.S. Dollars ($[**]);

6.4.1.2. [**] percent ([**]%) of calendar year annual Net Sales in excess of [**] U.S. Dollars ($[**]) up to [**] U.S. Dollars ($[**]);

6.4.1.3. [**] percent ([**]%) of calendar year annual Net Sales in excess of [**] U.S. Dollars ($[**]) up to [**] U.S. Dollars ($[**]); and

6.4.1.4. [**] percent ([**]%) of calendar year annual Net Sales in excess of [**] U.S. Dollars ($[**]).

With respect to each Licensed Product, royalties will be payable on a country-by-country basis, so long as the making, using or selling of the Licensed Product is covered by a Valid Claim in the country in which such Licensed Product is made, used or sold.

6.4.2. Joint Patent Rights Only Licensed Products. Notwithstanding the foregoing, in the event that the making, using or selling of a Licensed Product is covered only by a Valid Claim within the Joint Patent Rights (and not by any Valid Claim within the Harvard Patent Rights) in a certain country, the royalty payment rates specified above with respect to such Licensed Product shall be multiplied by the Relative Contribution Rate in such country.

6.4.3. Third Party Royalty Set Off. Notwithstanding the foregoing, in the event that Licensee is required to obtain a license from a third party to an Infringed Patent (as defined below) in order to make, use or sell Licensed Products, and Licensee obtains such a license after arm’s length negotiations, Licensee may offset an amount of up to [**] percent ([**]%) of any amounts paid under such third party license with respect to sales of such Licensed Product against the royalty payments that are due to Harvard pursuant to this Section 6.4 with respect to sales of such Licensed Product in such country; provided that in no event shall (a) the royalty payments to Harvard with respect to such Licensed Product be reduced for any Calendar Quarter by more than [**] percent ([**]%) of the amount otherwise due for such Calendar Quarter with respect to such Licensed Product under this Section 6.4 and (b) the offset that Licensee is entitled to make against royalty payments due to Harvard be greater than any offset that Licensee is entitled to make against royalty payments due to such third party licensee on account of royalty payments made to Harvard under this Agreement. If Licensee is unable to fully offset [**] percent ([**]%) of such amounts paid under third party licenses against royalties due for a Calendar Quarter, Licensee shall be entitled to carry forward to subsequent Calendar Quarters any undeducted amounts for deduction in such subsequent Calendar Quarters, subject to the limitations set forth in subsections (a) and (b) above.

6.5. Non-Royalty Sublicense Income. As partial consideration for the license granted hereunder, Licensee shall pay Harvard an amount equal to the following percentages of Non-Royalty Sublicense Income:

6.5.1. if Licensee grants a Sublicense [**] with respect to the Licensed Product that is the subject of such Sublicense, Licensee shall pay Harvard an amount equal to [**] percent ([**]%) of all Non-Royalty Sublicense Income received in connection with such Sublicense;

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6.5.2. if Licensee grants a Sublicense [**] with respect to the Licensed Product that is the subject of such Sublicense, Licensee shall pay Harvard an amount equal to [**] percent ([**]%) of all Non-Royalty Sublicense Income received in connection with such Sublicense; and

6.5.3. if Licensee grants a Sublicense [**] with respect to the Licensed Product that is the subject of such Sublicense, Licensee shall pay Harvard an amount equal to [**] percent ([**]%) of all Non-Royalty Sublicense Income received in connection with such Sublicense.

7. Reports; Payments; Records.

7.1. Reports and Payments.

7.1.1. Reports. Within [**] days after the conclusion of each Calendar Quarter commencing with the first Calendar Quarter in which Net Sales are generated or Non-Royalty Sublicense Income received, Licensee shall deliver to Harvard a report containing the following information (in each instance, with a Licensed Product-by-Licensed Product breakdown):

(a) the number of units of Licensed Products sold by Licensee, its Affiliates and Sublicensees for the applicable Calendar Quarter;

(b) the gross amount billed for Licensed Products sold by Licensee, its Affiliates and Sublicensees during the applicable Calendar Quarter;

(c) a calculation of Net Sales for the applicable Calendar Quarter, including an itemized listing of applicable deductions; and

(d) the total amount payable to Harvard in U.S. Dollars on Net Sales for the applicable Calendar Quarter, together with the exchange rates used for conversion.

In addition, Licensee shall include in each such report a statement of all Non-Royalty Sublicense Income and the amounts payable to Harvard in respect thereto for the applicable Calendar Quarter. Each such report shall be certified on behalf of Licensee as true, correct and complete in all material respects by Licensee’s Chief Financial Officer or an executive level officer with comparable authority. If no amounts are due to Harvard for any Calendar Quarter, the report shall so state.

7.1.2. Payment for Net Sales. Within [**] days after the end of each Calendar Quarter, Licensee shall pay Harvard all amounts due with respect to Net Sales and Non-Royalty Sublicense Income for the applicable Calendar Quarter.

7.2. Payment Currency. All payments due under this Agreement shall be payable in U.S. Dollars. Conversion of foreign currency to U.S. Dollars shall be made at the conversion rate existing in the United States (as reported in The Wall Street Journal ) on the last working day of the applicable Calendar Quarter. Such payments shall be without deduction of exchange, collection, or other charges.

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7.3. Records. Licensee shall maintain, and shall cause its Affiliates and Sublicensees to maintain, complete and accurate records of Licensed Products that are made, used or sold under this Agreement, any amounts payable to Harvard in relation to such Licensed Products and all Non-Royalty Sublicense Income received by Licensee and its Affiliates, which records shall contain sufficient information to permit Harvard to confirm the accuracy of any reports or notifications delivered to Harvard under Section 7.1. Licensee, its Affiliates and/or its Sublicensees, as applicable, shall retain such records relating to a given Calendar Quarter for at least [**] years after the conclusion of that Calendar Quarter, during which time Harvard shall have the right, at its expense, to cause an independent, certified public accountant to inspect such records during normal business hours for the sole purpose of verifying any reports and payments delivered under this Agreement. Such accountant shall enter into a confidentiality agreement reasonably satisfactory to Licensee and shall not disclose to Harvard any information other than information relating to the accuracy of reports and payments delivered under this Agreement. The parties shall reconcile any underpayment or overpayment within [**] days after the accountant delivers the results of the audit. In the event that any audit performed under this Section 7.3 reveals an underpayment in excess of five percent (5%) in any calendar year, the audited entity shall bear the full cost of such audit. Harvard may exercise its rights under this Section 7.3 [**] per audited entity and only with reasonable prior notice to the audited entity.

7.4. Late Payments. Any payments by Licensee that are not paid on or before the date such payments are due under this Agreement shall bear interest at the lower of (a) [**] percent ([**]%) per month and (b) the maximum rate allowed by law. Interest shall accrue beginning on the first day following the due date for payment and shall be compounded quarterly. Payment of such interest by Licensee shall not limit in any way, Harvard’s right to exercise any other remedies Harvard may have as a consequence of the lateness of any payment.

7.5. P ayment Method. Each payment due to Harvard under this Agreement shall be paid by check or wire transfer of funds to Harvard’s account in accordance with written instructions provided by Harvard. If made by wire transfer, such payments shall be marked so as to refer to this Agreement.

7.6. Withholding and Similar Taxes. Licensee shall use reasonable and legal efforts to reduce tax withholding on payments made to Harvard hereunder. Notwithstanding such efforts, if Licensee concludes that tax withholdings under the laws of any country are required with respect to payments to Harvard, Licensee shall withhold the required amount and pay it to the appropriate governmental authority. In such a case, Licensee will promptly provide Harvard with original receipts or other evidence reasonably desirable and sufficient to allow Harvard to document such tax withholdings adequately for purposes of claiming foreign tax credits and similar benefits.

8. Enforcement of Patent Rights.

8.1. Notice. In the event either party becomes aware of any possible or actual infringement of any Licensed Patent Rights relating to Licensed Products (collectively, an “Infringement), that party shall promptly notify the other party and provide it with details regarding such Infringement

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8.2. Suit by Licensee. Licensee shall have the first right, but not the obligation, to take action in the prosecution, prevention, or termination of any Infringement. Before Licensee commences an action with respect to any Infringement, Licensee shall consider in good faith the views of Harvard and potential effects on the public interest in making its decision whether to sue. Should Licensee elect to bring suit against an infringer, Licensee shall keep Harvard reasonably informed of the progress of the action and shall give Harvard a reasonable opportunity in advance to consult with Licensee and offer its views about major decisions affecting the litigation. Licensee shall give careful consideration to those views, but shall have the right to control the action; provided, however, that if Licensee fails to defend in good faith the validity and/or enforceability of the Licensed Patent Rights in the action, or if Licensee’s license to a Valid Claim in suit terminates, Harvard may elect to take control of the action pursuant to Section 8.3. Should Licensee elect to bring suit against an infringer and Harvard is joined as party plaintiff in any such suit, Harvard shall have the right to approve the counsel selected by Licensee to represent Licensee and Harvard, such approval not to be unreasonably withheld, delayed or conditioned (the parties agree that counsel’s conflict of interest shall be reasonable grounds for withholding approval). The expenses of such suit or suits that Licensee elects to bring, including any expenses of Licensors incurred in conjunction with the prosecution of such suits or the settlement thereof, shall be paid for entirely by Licensee and Licensee shall hold Licensors free, clear and harmless from and against any and all costs of such litigation, including attorney’s fees. Licensee shall not compromise or settle such litigation without the prior written consent of Harvard, which consent shall not be unreasonably withheld, delayed or conditioned (the parties agree that Harvard may withhold approval of any settlement that may reasonably be interpreted to impose any obligations on Harvard or limit the scope, validity or enforceability of any Licensed Patent Rights). In the event Licensee exercises its right to sue pursuant to this Section 8.2, it shall first reimburse itself out of any sums recovered in such suit or in settlement thereof for all costs and expenses of every kind and character, including reasonable attorney’s fees, reasonably incurred in the prosecution of any such suit. If, after such reimbursement, any funds shall remain from said recovery, then Harvard shall receive an amount equal to [**] percent ([**]%) of such funds and the remaining [**] percent ([**]%) of such funds shall be retained by Licensee.

8.3. Suit by Harvard. If Licensee does not take action in the prosecution, prevention, or termination of any Infringement pursuant to Section 8.2 above, and has not commenced negotiations with the infringer for the discontinuance of said Infringement, within [**] days after receipt of notice to Licensee by Harvard of the existence of an Infringement, Harvard may elect to do so. Should Harvard elect to bring suit against an infringer and Licensee is joined as party plaintiff in any such suit, Licensee shall have the right to approve the counsel selected by Harvard to represent Harvard, such approval not to be unreasonably withheld, delayed or conditioned (the parties agree that counsel’s conflict of interest shall be reasonable grounds for withholding approval). The expenses of such suit or suits that Harvard elects to bring, including any expenses of Licensee incurred in conjunction with the prosecution of such suits or the settlement thereof, shall be paid for entirely by Harvard and Harvard shall hold Licensee free, clear and harmless from and against any and all costs of such litigation, including attorney’s fees. Harvard shall not compromise or settle such litigation without the prior written consent of Licensee, which consent shall not be unreasonably withheld, delayed or conditioned (the parties agree that Licensee may withhold approval of any settlement that may reasonably be interpreted to impose any obligations on Licensee or limit the scope, validity or enforceability of any

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Licensed Patent Rights). In the event Harvard exercises its right to sue pursuant to this Section 8.3, it shall first reimburse itself out of any sums recovered in such suit or in settlement thereof for all costs and expenses of every kind and character, including reasonable attorney’s fees, reasonably incurred in the prosecution of any such suit. If, after such reimbursement, any funds shall remain from said recovery, then Licensee shall receive an amount equal to [**] percent ([**]%) of such funds and the remaining [**] percent ([**]%) of such funds shall be retained by Harvard.

8.4. Own Counsel. Each party shall always have the right to be represented by counsel of its own selection and at its own expense in any suit instituted under this Article 8 by the other party for Infringement.

8.5. Cooperation. Each party agrees to cooperate fully in any action under this Article 8 which is controlled by the other party, provided that the controlling party reimburses the cooperating party promptly for any costs and expenses incurred by the cooperating party in connection with providing such assistance.

8.6. Standing. If a party lacks standing and the other party has standing to bring any such suit, action or proceeding, then such other party shall do so at the request of and at the expense of the requesting party. If either party determines that it is necessary or desirable for another party to join any such suit, action or proceeding, the other party shall execute all papers and perform such other acts as may be reasonably required in the circumstances.

8.7. Declaratory Judgment. If a declaratory judgment action is brought naming Licensee and/or any of its Affiliates or Sublicensees as a defendant and alleging invalidity or unenforceability of any claims within the Harvard Patent Rights, Licensee shall promptly notify Harvard in writing and Harvard may elect, upon written notice to Licensee within [**] days after Harvard receives notice of the commencement of such action, to take over the sole defense of the invalidity or unenforceability aspect of the action at its own expense. The Party defending any such action shall give the other Party the opportunity to provide comments on and make requests of the defending Party concerning the conduct of such defense, and shall consider such comments and requests in good faith.

9. Warranties; Limitation of Liability.

9.1. Compliance with Law . Licensee represents and warrants that it will comply, and will ensure that its Affiliates and Sublicensees comply, with all local, state, and international laws and regulations relating to the development, manufacture, use, sale and importation of Licensed Products. Without limiting the foregoing, Licensee represents and warrants that it will comply, and will ensure that its Affiliates and Sublicensees will comply, with all United States export control laws and regulations with respect to Licensed Products.

9.2. No Warranty.

9.2.1. Harvard makes no warranties whatsoever as to the commercial or scientific value of the Harvard Patent Rights or Joint Patent Rights or the inventions disclosed therein. Harvard makes no representation that the practice of the Harvard Patent Rights or Joint Patent Rights or the development, manufacture, use, sale or importation of any Licensed Product, or any element thereof, will not infringe the patent or proprietary rights of any third party.

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9.2.2. Except as otherwise expressly provided in this Agreement, no party makes any warranty with respect to any technology, patents, goods, services, rights or other subject matter of this Agreement and hereby disclaims warranties of merchantability, fitness for a particular purpose and noninfringement with respect to any and all of the foregoing.

9.3. Limitation of Liability.

9.3.1. Except with respect to Licensee’s indemnification obligations under Article 10, neither party will be liable to the other with respect to any subject matter of this Agreement under any contract, negligence, strict liability or other legal or equitable theory for (i) any indirect incidental, consequential or punitive damages or lost profits or (ii) cost of procurement of substitute goods, technology or services.

9.3.2. Harvard’s aggregate liability for all damages of any kind arising out of or relating to this Agreement or its subject matter shall not exceed the amounts paid to Harvard under this Agreement.

10. Indemnification.

10.1. Indemnity.

10.1.1. Licensee shall indemnify, defend and hold harmless Harvard and its current or former directors, governing board members, trustees, officers, faculty, medical and professional staff, employees, students, and agents and their respective successors, heirs and assigns (collectively, the “Indemnitees”) from and against any third party claim, liability, cost, expense, damage, deficiency, loss or obligation or any kind or nature (including, without limitation, reasonable attorney’s fees and other costs and expenses of litigation) (collectively, “Claims”), based upon, arising out of, or otherwise relating to any acts or omissions of the Licensee, its Affiliates, or any of its Sublicensees in connection with Licensed Products or this Agreement or any cause of action relating to product liability concerning any product, process, or service made, used or sold pursuant to any right or license granted under this Agreement. Neither Licensee nor Harvard shall settle any Claim without the prior written consent of the other, which consent shall not be unreasonably withheld, delayed or conditioned, except that Licensee may settle any Claim to which Licensee’s indemnification obligations hereunder apply without the consent of Harvard if such settlement releases all Indemnitees from liability in respect of such Claim, does not impose any obligations on any Indemnitee and does not limit the scope, validity or enforceability of any Licensed Patent Right.

10.1.2. Licensee shall, at its own expense, provide attorneys reasonably acceptable to Harvard to defend against any actions brought or filed against any Indemnitee hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought.

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10.2. Insurance.

10.2.1. Beginning at the time any Licensed Product is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee, or by an Affiliate, Sublicensee or agent of Licensee, Licensee shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than $[**] per incident and $[**] annual aggregate and naming the Indemnitees as additional insureds. During clinical trials of any such Licensed Product, Licensee shall, at its sole cost and expense, procure and maintain commercial general liability insurance in such equal or lesser amount as Harvard shall require, naming the Indemnitees as additional insureds. Such commercial general liability insurance shall provide: (a) product liability coverage and (b) broad form contractual liability coverage for Company’s indemnification under this Agreement.

10.2.2. If Licensee elects to self-insure all or part of the limits described above in Section 10.2.1 (including deductibles or retentions which are in excess of $[**] annual aggregate) such self-insurance program must be acceptable to Harvard and the Risk Management Foundation of the Harvard Medical Institutions, Inc. in their sole discretion. The minimum amounts of insurance coverage required shall not be construed to create a limit of Licensee’s liability with respect to its indemnification under this Agreement.

10.2.3. Licensee shall provide Harvard with written evidence of such insurance upon request of Harvard. Licensee shall provide Harvard with written notice at least [**] days prior to the cancellation, non-renewal or material change in such insurance; if Licensee does not obtain replacement insurance providing comparable coverage within such [**]) day period, Harvard shall have the right to terminate this Agreement effective at the end of such [**] day period without notice or any additional waiting periods.

10.2.4. Licensee shall maintain such commercial general liability insurance beyond the expiration or termination of this Agreement during: (a) the period that any Licensed Product is being commercially distributed or sold by Licensee, or an Affiliate, Sublicensee or agent of Licensee; and (b) a reasonable period after the period referred to in (a) above which in no event shall be less than [**] years.

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11. Term and Termination.

11.1. Term . The term of this Agreement shall commence on the Effective Date and, unless earlier terminated as provided in this Article 11, shall continue in full force and effect on a Licensed Product-by-Licensed Product and country-by-country basis until expiration of the last to expire of the Harvard Patents Rights and Joint Patent Rights.

11.2. Termination.

11.2.1. Termination Without Cause. Licensee may terminate this Agreement upon sixty (60) days prior written notice to Harvard.

11.2.2. Termination for Failure to Obtain Financing . In the event that Licensee fails to complete an investment in the capital stock of Licensee that results in the receipt by Licensee of at least [**] U.S. Dollars ($[**]) (a “Qualifying Financing”) within [**] days after the Effective Date, Harvard may terminate this Agreement immediately upon written notice to Licensee. Notwithstanding the foregoing, if Harvard fails to exercise this right to terminate and Licensee subsequently completes a Qualifying Financing (after the [**] day period) and issues Shares to Harvard as set forth in Section 6.2.1, the termination right set forth in this Section 11.2.2 shall expire and have no further force or effect. The termination right set forth in this Section 11.2.2 is Harvard’s sole and exclusive remedy and Licensee’s sole and exclusive liability for any failure by Licensee to complete a Qualifying Financing.

11.2.3. Termination for Default.

11.2.3.1. In the event that either party commits a material breach of its obligations under this Agreement and fails to cure that breach within [**] days after receiving written notice thereof, the other party may terminate this Agreement immediately upon written notice to the party in breach.

11.2.3.2. If Licensee defaults in its obligations under Section 10.2 to procure and maintain insurance or, if Licensee has in any event failed to comply with the notice requirements contained therein and does not cure such failure within [**] business day of written notice thereof from Harvard, then Harvard may terminate this Agreement immediately without notice or additional waiting period.

11.2.4. Bankruptcy. Harvard may terminate this Agreement upon notice to Licensee if Licensee becomes insolvent, is adjudged bankrupt, applies for judicial or extra-judicial settlement with its creditors, makes an assignment for the benefit of its creditors, voluntarily files for bankruptcy or has a receiver or trustee (or the like) in bankruptcy appointed by reason of its insolvency, or in the event an involuntary bankruptcy action is filed against Licensee and not dismissed within ninety (90) days, or if the other party becomes the subject of liquidation or dissolution proceedings or otherwise discontinues business; provided that the termination right set forth in this Section 11.2.4 shall not be exercisable if Licensee continues to perform its obligations under this Agreement in all material respects.

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11.3. Effect of Termination.

11.3.1. T ermination of Rights. Upon termination of this Agreement by either party pursuant to any of the provisions of Section 11.2: (a) the rights and licenses granted to Licensee under Article 4 shall terminate and all rights in and to and under the Harvard Patent Rights and Harvard’s interest in the Joint Inventions shall revert to Harvard; and (b) any existing agreements that contain a Sublicense shall terminate to the extent of such Sublicense; provided, however, that, for each Sublicensee, upon termination of the Sublicense agreement with such Sublicensee, if the Sublicensee is not then in breach of its Sublicense agreement with Licensee such that Licensee would have the right to terminate such Sublicense, such Sublicensee shall have the right to seek a license from Harvard. Harvard agrees to negotiate such licenses in good faith under reasonable terms and conditions, which shall not impose any representations, warranties, obligations or liabilities on Harvard that are not included in this Agreement. Notwithstanding the foregoing, Licensee shall have a non-exclusive license under Harvard’s interest in any Joint Patent Rights to develop, make, have made, use, market, offer for sale, sell and import Licensed Products, provided that Licensee pays the applicable royalties and payments to Harvard in accordance with Sections 6.4 and 6.5, provides reports and audit rights to Harvard pursuant to Article 7 and maintains insurance in accordance with the requirements of Section 10.2.

11.3.2. Accruing Obligations. Termination of this Agreement shall not relieve the parties of obligations occurring prior to such termination, including obligations to pay amounts accruing hereunder up to the date of termination.

11.3.3. Transfer of Regulatory Filings. In addition, in the event Licensee terminates this Agreement pursuant to Section 11.2.1 or Harvard terminates this Agreement pursuant to Section 5.4, 11.2.2, 11.2.3 or 11.2.4, at Harvard’s request Licensee shall promptly deliver and assign to Harvard all documents and other materials filed by or on behalf of Licensee and its Affiliates with regulatory agencies in furtherance of applications for regulatory approval in the relevant country with respect to Licensed Products (“Assigned Materials”).

11.3.3.1. In the event that Harvard grants a third party a license to make, use, offer for sale, sell or import a Licensed Product and, in connection therewith, also grants the third party a license under or with respect to, or access to, any of the Assigned Materials relating to such Licensed Product, Harvard shall pay Licensee royalties in the amount of [**] percent ([**]%) of all Net Harvard Receipts (as defined below) received by Harvard in connection with such Licensed Product under such license. All such royalties shall be paid by Harvard within [**] days of receipt. With such distribution, Harvard shall provide a financial accounting showing Harvard Receipts (as defined below) received and all deductions therefrom. Licensee shall keep such reports in confidence; provided that Licensee shall be permitted to include the information in such reports in its financial statements and public disclosures as reasonably required to satisfy accounting rules and securities laws and regulations.

11.3.3.2. “Net Harvard Receipts” shall mean Harvard Receipts less Harvard Expenses.

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11.3.3.3. “Harvard Receipts” shall mean all amounts in cash and other consideration actually received by Harvard from the grant of a license to make, use, offer for sale, sell or import a Licensed Product, which license is accompanied by a license or grant of right to use the Assigned Materials with respect to such Licensed Product. Notwithstanding the above, “Harvard Receipts” shall not include payments specifically committed to (a) reimburse patent expenses incurred by Harvard in connection with such Licensed Product and (b) cover future costs to be actually incurred by Harvard (including customary overhead) in accordance with detailed budgets and research workplans included in sponsored research agreements relating to such Licensed Product. The parties do not envision that Harvard would ever elect to commercialize the Licensed Product directly or through any Harvard Affiliate; however, in the event that Harvard commercializes the Licensed Product directly or through an Affiliate, the parties will negotiate appropriate royalty rates to be paid by Harvard comparable to the royalty rates to be paid by Licensee under Section 6.4.1.

11.3.3.4. “Harvard Expenses” shall mean all out-of-pocket expenses and professional fees that are not reimbursed or otherwise paid by a licensee or other third party, including legal fees, patent agent fees and fees paid to other experts, incurred by Harvard in connection with: (a) the filing, prosecution, maintenance or enforcement of any patent application or patent covering the relevant Licensed Product; or (b) the preparation, negotiation, execution and/or enforcement of any agreement pursuant to which the Harvard Receipts are received.

11.4. Survival. The parties’ respective rights, obligations and duties under Articles 7 and 10 and under this Article 11, as well as any rights, obligations and duties which by their nature extend beyond the expiration or termination of this Agreement, shall survive any expiration or termination of this Agreement. In addition, Licensee’s obligations under Section 6.5 with respect to Sublicenses granted prior to termination of the Agreement shall survive termination; provided that the basis for the Non-Royalty Sublicense Income under such Sublicenses received after the termination of this Agreement to which such surviving Section 6.5 obligations relate is, in whole or in part, licenses and/or sublicenses under Harvard Patent Rights or Joint Patent Rights and not exclusively other rights and licenses granted by Licensee in connection with such Sublicense. Harvard’s obligations under Section 12.15 shall survive expiration or termination of this Agreement.

12. Miscellaneous.

12.1. Preference for United States Industry. During the period of exclusivity of this license in the United States, Licensee shall cause any Licensed Product produced for sale in the United States to be manufactured substantially in the United States.

12.2. Use of Name. Licensee shall not, and shall ensure that its Affiliates and Sublicensees shall not, use the name or insignia of Harvard or the name of any of Harvard officers, faculty, other researchers or students, or any adaptation of such names, in any advertising promotional or sales literature, including without limitation any press release or any document employed to obtain funds, without the prior written approval of Harvard; provided that Dr. Myers’ consent to the use of his name and his affiliation with Harvard shall be sufficient approval for the use of his name and affiliation. The restriction set forth in this Section 12.2 shall not apply to any information required by law to be disclosed to any governmental entity, including without limitation any information required to be disclosed pursuant to rules and regulations promulgated by the United States Securities and Exchange Commissions or the rules and regulations of any stock exchange or NASDAQ.

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12.3. Entire Agreement. This Agreement is the sole agreement with respect to the subject matter hereof and except as expressly set forth herein, supersedes all other agreements and understandings between the parties with respect to the same.

12.4. Notices. Unless otherwise specifically provided, all notices required or permitted by this Agreement shall be in writing and may be delivered personally, or may be sent by facsimile or certified mail, return receipt requested, to the following addresses, unless the parties are subsequently notified of any change of address in accordance with this Section 12.4:

 

 

 

 

If to

License:

    

Tetraphase Pharmaceuticals, Inc.

c/o Mediphase Venture Partners

3 Newton Executive Park, Suite 104

Newton, Massachusetts 02462

 

 

 

    

Attn.: Chief Executive Officer

 

 

If to

Harvard:

    

Office of Technology Development

Harvard University

Holyoke Center 727

1350 Massachusetts Avenue

Cambridge, Massachusetts 02138

 

 

 

    

Attn.: Chief Technology Development Officer

Any notice shall be deemed to have been received as follows: (i) by personal delivery, upon receipt; (ii) by facsimile, one business day after transmission or dispatch; (iii) by airmail, seven (7) business days after delivery to the postal authorities by the party serving notice. If notice is sent by facsimile, a confirming copy of the same shall be sent by mail to the same address.

12.5. Governing Law and Jurisdiction. This Agreement will be governed by, and construed in accordance with, the substantive laws of the Commonwealth of Massachusetts, without giving effect to any choice or conflict of law provision, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent shall have been granted. Sole jurisdiction is hereby granted by the parties to the state courts of the Commonwealth of Massachusetts or the federal courts of the District of Massachusetts, without restricting any right of appeal.

12.6. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns.

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12.7. Headings. Article, section and subsection headings are inserted for convenience of reference only and do not form a part of this Agreement.

12.8. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original.

12.9. Amendment; Waiver. This Agreement may be amended, modified, superseded or canceled, and any of the terms may be waived, only by a written instrument executed by each party or, in the case of waiver, by the party waiving compliance. The delay or failure of any party at any time or times to require performance of any provisions hereof shall in no manner affect the rights at a later time to enforce the same. No waiver by either party of any condition or of the breach of any term contained in this Agreement, whether by conduct, or otherwise, in any one or more instances, shall be deemed to be, or considered as, a further or continuing waiver of any such condition or of the breach of such term or any other term of this Agreement.

12.10. No Agency or Partnership. Nothing contained in this Agreement shall give any party the right to bind another, or be deemed to constitute either parties as agents for each other or as partners with each other or any third party.

12.11. Assignment and Successors. This Agreement may not be assigned by either party without the consent of the other, which consent shall not be unreasonably withheld, delayed or conditioned, except that each party may, without such consent, assign this Agreement and the rights, obligations and interests of such party to any of its Affiliates, to any purchaser of all or substantially all of its business, stock, assets or research to which the subject matter of this Agreement relates, or to any successor corporation resulting from any merger or consolidation of such party with or into such corporation; provided, in each case, that the assignee agrees in writing to be bound by the terms of this Agreement. Any assignment purported or attempted to be made in violation of the terms of this Section 12.11 shall be null and void and of no legal effect.

12.12. Force Majeure. Neither party will be responsible for delays resulting from causes beyond the reasonable control of such party, including without limitation fire, explosion, flood, war, strike, or riot, provided that the nonperforming party uses commercially reasonable efforts to avoid or remove such causes of nonperformance and continues performance under this Agreement with reasonable dispatch whenever such causes are removed.

12.13. Interpretation. The parties hereto acknowledge and agree that: (i) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this Agreement shall be construed fairly as to both parties hereto and not in favor of or against either party, regardless of which party was generally responsible for the preparation of this Agreement.

12.14. Severability. If any provision of this Agreement is or becomes invalid or is ruled invalid by any court of competent jurisdiction or is deemed unenforceable, it is the intention of the parties that the remainder of this Agreement shall not be affected.

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12.15. Confidentiality. Harvard shall keep confidential, not disclose to any third party and not use for any purpose other than monitoring Licensee’s performance under this Agreement any information (including reports) provided to Harvard by Licensee or by Dr. Myers under Sections 2.5, 2.6, 5.3, 7.1 and 7.3 of this Agreement; provided, however, that Harvard (i) may include in its annual reports totals derived from information received from Licensee (without attribution to Licensee) that show revenues generated by the patents and patent applications licensed under this Agreement and (ii) may use and disclose information provided under Sections 2.5 and 2.6 to file patent applications with respect to Harvard Inventions and, as permitted under this Agreement, Joint Inventions; and provided further that the non-disclosure and non-use obligations shall not apply to any information that (a) is or becomes part of the public domain other than by Harvard’s breach of this Section 12.15, (b) is included within Abandoned Harvard Patent Rights or Abandoned Joint Patent Rights, or (c) is required to be disclosed by Harvard pursuant to interrogatories, requests for information or documents, subpoena, civil investigative demand issued by a court or governmental agency or as otherwise required by law (provided that, in such case, Harvard shall notify Licensee immediately upon receipt thereof and give Licensee sufficient advance notice to permit it to seek a protective order or other similar order with respect to such information). To the extent that it is reasonably necessary, Harvard may disclose information it is otherwise obligated under this Section 12.15 not to disclose to (y) its employees on a need-to-know basis and on condition that such employees abide by the obligations set forth in this Section 12.15 and (z) in confidence, to lawyers, accountants and financial advisors.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.

 

 

 

 

 

 

 

 

 

 

President and Fellows of Harvard College

 

 

 

Tetraphase Pharmaceuticals, Inc.

 

 

 

 

 

By:

 

/s/  Isaac Kohlberg

 

 

 

By:

 

/s/  Lawrence G. Miller

 

 

 

 

 

Name:

 

 

 

 

 

Name:

 

Lawrence G. Miller

 

 

 

 

 

Title:

 

 

 

 

 

Title:

 

President

I, the undersigned, hereby confirm that I have read the Agreement, that its contents are acceptable to me and that I agree to be bound by the terms of Article 2.

 

 

 

 

 

 

 

 

 

 

/s/  Andrew G. Myers

 

 

 

 

 

 

Andrew G. Myers

 

 

 

 

 

 

 

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Exhibit 1.5

Development Milestones

1. Licensee shall commence [**] with respect to a Licensed Product within [**] months of the Effective Date.

2. Licensee shall commence [**] with respect to a Licensed Product within [**] months of the Effective Date.

3. Licensee shall [**] for a Licensed Product within [**] months of the Effective Date.

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Exhibit 1.6

Development Plan

32


 

Tetraphase Pharmaceuticals

CONFIDENTIAL

Tetraphase Pharmaceuticals: Initial Plan

Summary

This company is to be formed to ensure rapid development of commercial products based on the groundbreaking studies of tetracycline synthesis conducted by Prof. Andrew Myers and colleagues in the Department of Chemistry and Chemical Biology at Harvard University. The initial goal of the company is to create multiple antibiotic candidates based on these synthetic technologies, and to advance these candidates into clinical trials. Subsequently, the company will pursue further antibacterial compounds, through synthetic pathways or in-licensing. The overall goal is to become an integrated pharmaceutical company and a leader in the development of antibacterials. The company name, Tetraphase Pharmaceuticals, refers to the initial focus on tetracyclines, as well as the multiple phases of development that will encompass other types of antibacterials (see below).

Background

Tetracyclines as a class of anti-infective compounds were first employed in the 1940s (chlortetracycline); tetracycline itself was introduced in 1953, and second generation tetracyclines appeared in the 1960s and early 1970s. Indeed, over the three decades from the late 1940’s onward, nearly 30% of all approved antibiotics were tetracyclines. Their use has spanned the spectrum of bacterial infections, including gram-positive and gram-negative bacteria, Chlamydia, mycoplasma and spirochetes. Of note, the anti-inflammatory properties of tetracyclines were also recognized, and it is likely that the effectiveness of this class in conditions such as acne derives at least in part from anti-inflammatory efficacy.

Although tetracyclines, especially doxycycline, remain in widespread use, resistance to tetracyclines emerged as a major problem in the 1970s and has led to reduced efficacy and utility of this class. However, as resistance has subsequently developed to other classes of antibiotics, interest in tetracyclines has been rekindled, in part due to their oral absorption and potentially wide spectrum of action. A new class of tetracyclines, the glycylcyclines, was synthesized in the 1990s, and in mid-2005, a member of this class, tigecycline (Tygacil, Wyeth), received approval in the U.S.

Despite significant interest in this class over the last 15 years, development of new tetracyclines has been hampered by difficulties in synthesis. Little structural diversity has been generated, with almost all efforts directed at a small number of core intermediates. This lack of chemical diversity has led to limitations in anti-infective diversity, with little success in overcoming drug resistance. The glycylcyclines, such as tigecycline, appear to provide an improvement in overcoming resistance, although toxicity remains an issue.

The Myers technology offers a way out of this “box”, with the potential to create multiple novel structures based on different intermediates, and even to expand the number of rings overall. Based on the performance of compounds in this class, it is reasonable to hypothesize that compounds can be designed with improved efficacy, i.e., decreased resistance, coupled with limited toxicity.

 

 

 

 

 

 

 

CONFIDENTIAL

 

1

 

March 2006

 


 

Tetraphase Pharmaceuticals

CONFIDENTIAL

 

Market

The worldwide market for anti-infectives is in excess of $25 billion, but the market is in transition. Although the total worldwide anti-infective market was in excess of $25 billion in 2004, growth in this sector has been limited. Indeed, through much of the last 1980’s and 1990’s, this market was perceived as stagnant: effective antibiotics were available for most bacterial pathogens. This perception encouraged a lack of effort in this area. Indeed, several major pharmaceutical companies have reduced or eliminated their antibiotic development programs. Only a handful of new antibacterials have been approved in the last 10 years, most for complex, often hospital-based infections. In a survey conducted in 2004, only 6 of 506 drugs under development at the pharmaceutical companies and larger biotechnology companies were new antibacterial agents (Spellberg et al., 2004). Concurrently, rapidly-developing resistance is limiting the utility of current antibacterials; resistant staphylococcus species are becoming endemic (especially methicillin resistant staphylococcus aureus, or MRSA), and resistance in other gram-positive and gram-negative pathogens is increasing.

The confluence of these trends creates a significant opportunity for anti-infective development, and in particular for a company with an intense focus on antibacterials. There are clear opportunities to develop branded antibiotics which can generate annual sales of $300-500 million.

The target compound for the expanded tetracycline class would therefore have the following characteristics:

 

 

 

Efficacy against staph, aureus and gram negative organisms

 

 

 

Limited gastrointestinal adverse effects

 

 

 

Oral and parenteral availability

These features would make the compound applicable to the following common indications:

 

 

 

Urinary tract infections, including catheter and non-catheter based

 

 

 

Skin and soft tissue infections

 

 

 

Intra-abdominal infections, e.g., appendicitis, diverticulitis, post-operative

 

 

 

Pneumonia, both hospital and community-acquired

Note that Tygacil, the recently approved tetracycline, has been approved for both skin and soft tissue infections and intro-abdominal infections.

An enhanced tetracycline which could address the indications listed above would be expected to have a market opportunity of at least $500 million, and perhaps as much as $1 billion.

Current Status of Tetracyclines

When first introduced into clinical practice in the 1940’s, the tetracyclines had broad activity against gram-positive and gram-negative bacteria and chlmaydia, mycoplasma, etc. The class was used widely in both humans and animals, and by 1953 initial resistance was observed. Since

 

 

 

 

 

 

 

CONFIDENTIAL

 

2

 

March 2006

 


 

Tetraphase Pharmaceuticals

CONFIDENTIAL

 

that time, resistance to tetracyclines has increased markedly, limited the use of the class in many common infections. Current indications include urinary tract infections, Lyme disease, shigellosis and rickeettsial, chlamydial and mycoplasmal infections. Doxycycline is the most widely used tetracycline currently, due to limited adverse effects and twice daily dosing.

The first new tetracycline in over 30 years, tigecycline (Tygacil, Wyeth) was approved in June 2005. Tigecycline, the first glycylcycline tetracycline, is a minocycline analog characterized by a substitution at the 9 position (or position 1 of the D ring; see below), It has substantial advantages over earlier tetracyclines. It is active against methicillin-resistant staphylococcous aureus (MRSA), as well as some gram-negatives, including enterococci, enterobacteria, and possibly acinetobacter. Tigecycline evades the major bacterial tetracycline efflux pumps, and also binds to modified bacterial ribosomes, another potential cause of resistance. The drug is approved for complex skin and soft tissue infections, as well as complicated intra-abdominal infections. Major adverse events, as is common in the tetracycline class, occur in the gastrointestinal system. In Phase III studies, 29.5% of patients reported nausea, 19.7% vomiting and 12.7% of patients experienced diarrhea. Tigecycline is administered intravenously every 12 hours.

As such, tigecycline has an attractive clinical spectrum, and pre-approval studies indicate efficacy comparable to currently first-line antibiotics. However, the drug must be administered intravenously and leads to a disturbing incidence of gastrointestinal adverse events. Launch of tigecycline has rekindled interest in the tetracycline class, but there is clearly room for improvement over tigecycline characteristics.

A second glycylcycline is under development by Paratek (PTK-0796). Although limited information is available, this compound is in Phase I clinical trials and is said to possess a similar antibacterial spectrum as tigecycline, but with reduced potency against gram-negative bacteria. The compound was recently partnered with Merck.

Tetracycline optimization

The core structure of all clinically useful tetracyclines is similar, consisting of 4 rings, and conserved areas to the “east” and “south” of the molecule (see below), the areas known to participate in binding to the bacterial ribosomal target. Limited substitutions from tetracycline itself have led to analogs with some improvements in spectrum and clinical characteristics. Prior to the introduction of tigecycline, clinically available tetracyclines had substitutions on the 5, 6 and 7 positions compared to tetracycline (e.g., doxycycline, chlortetracycline, oxytetracycline, minocycline).

 

 

 

 

 

 

 

CONFIDENTIAL

 

3

 

March 2006

 


 

Tetraphase Pharmaceuticals

CONFIDENTIAL

 

 

The recently introduced tigecycline and the investigational Paratek compound (PTK-0796) are analogs of minocycline, with substitutions at the 9 position as illustrated below:

 

 

 

 

 

 

 

 

CONFIDENTIAL

 

4

 

March 2006

 


 

Tetraphase Pharmaceuticals

CONFIDENTIAL

 

The Myers approach allows a tremendous range of variations, most obviously at positions 6, 7, 8, 9 and 10 (on the C and D rings), but also at other positions likely to be involved in ribosomal binding. Addition of a fifth ring with concomitant substitutions also becomes possible. The shaded area in the figure below is constant in clinically-useful tetracyclines, and is accessible in the Myers synthesis. The Myers synthesis also offers broad opportunities in the unshaded area.

 

[**]

These criteria [**].

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

  

[**]

  

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[**]

[**]

  

[**]

  

[**]

  

[**]

  

[**]

  

[**]

[**]

  

[**]

  

[**]

  

[**]

  

[**]

  

[**]

[**]

  

[**]

  

[**]

  

[**]

  

[**]

  

[**]

[**]

  

[**]

  

[**]

  

[**]

  

[**]

  

[**]

Company Objectives

As described the above, the overall objective is to create an integrated pharmaceutical company focused on antibacterials. Initial phases of development will focus on tetracyclines, subsequently broadening to include other classes and types of antibacterials.

 

 

 

 

 

 

CONFIDENTIAL

 

5

 

March 2006

 

 

 

 

 

 

CONFIDENTIAL

 

5

 

March 2006

 


 

Tetraphase Pharmaceuticals

CONFIDENTIAL

 

Stage I

Initially, the company will be [**]

Thus, the near-term objectives of the company will be:

[**]

This process is estimated to require approximately [**]

Stage II

[**]. The company will [**].

Stage III

[**], the company will [**].

Stage IV

[**], the company will [**].

Intellectual Property

The company will [**].

Company structure and pre-clinical development

As noted above, the core competencies of the company will be [**] development.

Pre-clinical [**]. After review of proposals and cost estimates, the consensus of company advisors is that [**].

[**].

Goals:

[**]

 

 

 

 

 

 

 

CONFIDENTIAL

 

6

 

March 2006

 


 

Tetraphase Pharmaceuticals

CONFIDENTIAL

 

 

 

Tasks

[**]

 

[**]

 

[**]

 

[**]

The goals are to [**].

Goals: [**].

 

 

Tasks

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

[**]

Goals: [**]

 

 

Tasks

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

 

 

CONFIDENTIAL

 

7

 

March 2006

 


 

Tetraphase Pharmaceuticals

CONFIDENTIAL

 

 

 

Tasks

[**]

 

[**]

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

Clinical development

[**]. The company will develop [**].

Commercial Potential

Estimation of the commercial potential of [**].

Pricing

Using [**] it is estimated that the [**].

Forecast

At this time there are [**]. The forecast is built on the following assumptions:

• [**]

• [**]

• [**]

• [**]

Sales Forecast

($ in millions)

 

 

 

 

 

 

 

 

 

 

 

 

   

  

Year 1

 

Year 2

 

Year 3

 

Year 4

 

Year 5

U.S. Sales

  

[**]

 

[**]

 

[**]

 

[**]

 

[**]

Potential

As previously stated, this proposal is built on the Tetraphase product [**] the forecast above.

Company personnel and recruitment

As noted above, approximately [**] personnel will be required for [**], organized as follows:

[**]

[**]

 

 

 

 

 

 

 

CONFIDENTIAL

 

8

 

March 2006

 


 

Tetraphase Pharmaceuticals

CONFIDENTIAL

 

With regard to recruitment, [**].

Facility

[**].

Advisors

Advisors with [**].

Prof. Andrew Myers, Chairman: Prof. Myers’ expertise in synthetic chemistry forms the basis for the company, and his ongoing involvement is crucial in the creation and execution of the appropriate synthetic pathways and compounds. Prof. Myers will work closely with the company on a regular basis, attending research meetings and providing guidance.

Dr. Eric Gordon, Drug Development Advisor: Dr. Gordon is Chairman of the Mediphase Scientific Advisory Board and is widely known for his expertise and success in the development of anti-infectives. While holding senior positions in chemistry at Bristol Myers Squibb, Dr. Gordon supervised the development of approved drugs. He subsequently was a founder of two anti-infective-focused biotechnology companies, Versicor and Vicuron.

Dr. Joaquim Trias, Bacteriology Advisor: Dr. Trias served as Vice President, Microbiology Drug Research at Vicuron for 8 years. Previously, he was a senior scientist at Microcide Pharmaceuticals, and prior to that was in the Dept. of Microbiology at the University of Barcelona.

[**]

 

 

 

 

Timeline

 

 

[**]

 

[**]

[**]

 

[**]

[**]

 

[**]

[**]

 

[**]

[**]

 

[**]

[**]

 

[**]

[**]

 

[**]

[**]

 

[**]

[**]

 

[**]

[**]

 

[**]

Financing

[**] initial financing for the company, which will likely include [**]. The initial financing will [**].

Budget

See attached.

 

 

 

 

 

 

 

CONFIDENTIAL

 

9

 

March 2006

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Budget Yrs. 1-2

  

Q1

 

  

Q2

 

  

Q3

 

  

Q4

 

  

Year 1

 

  

Q5

 

  

Q6

 

  

Q7

 

  

Q8

 

  

Year 2

 

  

Total

 

Personnel

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

Supplies/External

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

[**]

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

[**]

  

  

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

[**]

  

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

[**]

  

  

 

[**]

  

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Capital equipment

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

[**]

  

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

[**]

  

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

[**]

  

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

[**]

  

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

[**]

  

 

[**]

  

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

  

 

[**]

  

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

 


 

Exhibit 6.2.1

Form of Investment Representation Letter

 


 

Exhibit 6.2.1

Investment Representation Letter

Tetraphase Pharmaceuticals, Inc.

c/o Mediphase Venture Partners

3 Newton Executive Park

Newton, MA 02462

Re: Issuance of Shares of Common Stock of Tetraphase Pharmaceuticals, Inc.

Dear Sirs:

In order to induce Tetraphase Pharmaceuticals, Inc. (the “ Company ”) to issue to President and Fellows of Harvard College (“ Harvard ”) [ ] shares (the “ Shares ”) of common stock, par value $0.001 per share, of the Company (the “ Common Stock ”), pursuant to Section 6.2.1 of that certain License Agreement, dated July [ ], 2006, between the Company and Harvard (the “ License Agreement ”), Harvard hereby represents, warrants and covenants to the Company as follows:

1. Harvard is acquiring the Shares for its own account for investment only, and not with a view to, or for sale in connection with any distribution of the Shares in violation of the Securities Act of 1933, as amended, (the “ Securities Act ”), or any rule or regulation under the Securities Act.

2. Harvard has had such opportunity as it has deemed adequate to obtain from representatives of the Company such information as is necessary to permit Harvard to evaluate the merits and risks of its acquisition of the Shares.

3. Harvard has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the acquisition of the Shares and to make an informed investment decision with respect to such acquisition.

4. Harvard can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding such Shares for an indefinite period.

5. Harvard understands that (i) the Shares have not been registered under the Securities Act and are “restricted securities” within the meaning of Rule 144 under the Securities Act; (ii) the Shares cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act or an exemption from registration is then available; (iii) in any event, the exemption from registration under Rule 144 or otherwise may not be available for at least one year and even then will not be available unless a public market then exists for the Common Stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and (iv) there is now no registration statement on file with the Securities and Exchange Commission with respect to any stock of the Company and the Company has no obligation or current intention to register the Shares under the Securities Act.

 


 

6. A legend substantially in the following form will be placed on the certificates represented the Shares:

“The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under such Act or an opinion of counsel satisfactory to the corporation to the effect that such registration is not required.”

7. The foregoing representations and warrants are true as of the date of this Investment Representation Letter and shall be true as of the date the Company issues the Shares to Harvard. If such representations and warranties shall not be true in any respect prior to such date, Harvard will give prompt written notice of such fact to the Company.

8. Harvard agrees, in connection with the initial underwritten public offering of the Company securities pursuant to a registration statement under the Securities Act, (i) not to sell, make short sale of, loan, grant any options for the purchase of, or otherwise dispose of any shares of Common Stock held by Harvard (other than those shares included in the offering) without the prior written consent of the Company or the underwriters managing such initial underwritten public offering of the Company’s securities for a period of 180 days from the effective date of such registration statement, and (ii) to execute any agreement reflecting clause (i) as may be requested by the Company or the managing underwriters at the time of such offering.

[Remainder of page intentionally left blank.]

 


 

This Investment Representation Letter shall be binding upon and inure to the benefit of the Company and Harvard and its assigns.

This Investment Representation Letter shall be construed and enforced in accordance with and governed by the laws of the Commonwealth of Massachusetts without giving effect to the principles of conflicts of laws thereof.

This Investment Representation Letter may be exercised in counterparts and by facsimile signature.

 

 

 

 

President and Fellows of Harvard College

 

 

By:

 

   

 

 

Name:

 

 

Title:

 

 

Date:

 

   

 

Investment Representation Letter Signature Page

 


 

A6820amend1

Amendment to License Agreement

This Amendment to License Agreement (this “Amendment”) is entered into as of this 31 st day of January, 2007 (the “Effective Date”), by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation, with its principal place of business 480 Arsenal St., Suite 110, Watertown, MA 02472 (“Licensee”) and President and Fellows of Harvard College, Holyoke Center, Suite 727, 1350 Massachusetts Avenue, Cambridge, Massachusetts 01238 (“Harvard”).

WHEREAS, the parties entered into a License Agreement as of August 3, 2006 (the “License Agreement”), pursuant to which Harvard granted to Licensee an exclusive license under Harvard Patent Rights and Harvard’s interest in Joint Patent Rights (as such terms are defined in the License Agreement);

WHEREAS, Dr. Andrew G. Myers, a Harvard researcher, is (or by definition will be) an inventor of the inventions claimed in the Harvard Patent Rights and Joint Patent Rights;

WHEREAS, Dr. Myers is an inventor of technology claimed in a new patent application [**] owned by Harvard that is neither a Harvard Patent Right nor a Joint Patent Right, but which claims subject matter related thereto; and

WHEREAS, Licensee wishes to obtain a license under such new patent application and Harvard wishes to grant Licensee a license thereunder;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

 

1.

Capitalized terms used in this Amendment that are not defined herein shall have the meanings set forth in the License Agreement.

 

2.

Section 1.10 of the License Agreement is replaced in its entirety with the following:

“Harvard Patent Rights” shall mean, in each case to the extent owned and controlled by Harvard: (a) [**] (including the PCT applications and/or the US regular utility applications filed at or prior to the one year conversion date claiming priority to such provisional applications); (b) any patent or patent application that claims priority to and is a divisional, continuation, reissue, renewal, reexamination, substitution or extension of any patent or patent application identified in (a); (c) any patents issuing on any of the patent applications identified in (a) or (b) and any reissues, renewals, reexaminations, substitutions or extensions thereof; (d) any claim of a continuation-in-part application or patent that is entitled to the priority date of, and is directed specifically to subject matter specifically described in, at least one of the patents or patent applications identified in (a), (b) or (c); (e) any foreign counterpart of any of the patents or patent applications identified in (a), (b) or (c) or of the claims identified in (d); and (f) any claim of any United States or foreign patent or patent application to the extent specifically directed to subject matter of Harvard Inventions.

 

3.

Section 6.1 of the License Agreement is replaced in its entirety with the following:

 


 

License Issuance Fee. As partial consideration for the license granted hereunder, Licensee shall pay Harvard the following non-refund able license fees:

(a) [**] U.S. Dollars ($[**]), payable within [**] days after the date on which Licensee completes a Qualifying Financing (as defined in Section 11.2.2 below); and

(b) [**] U.S. Dollars ($[**]) with respect to [**] by January 31, 2007.

 

4.

Section 3.3 of the License Agreement

Expenses. Subject to Section 3.4 below, Licensee shall reimburse Harvard for all documented, out-of-pocket expenses incurred by Harvard pursuant to this Article 3 within [**] days after Harvard invoices Licensee. In addition, Licensee shall reimburse Harvard for all documented, out-of-pocket expenses incurred by Harvard prior to the execution of this Agreement with respect to the preparation, filing, prosecution, protection and maintenance of Harvard Patent Rights (estimated to be approximately [**] U.S. Cents ($[**])) within [**] days after the date on which the financing described in Section 11.2.2 below closes. In the event that this Agreement is amended in accordance with Section 4.3 to add a new patent or patent application to the definition of Harvard Patent Rights, Licensee shall reimburse Harvard for all documented, out-of-pocket expenses incurred by Harvard prior such amendment with respect to the preparation, filing, prosecution, protection and maintenance of such new patent or patent application within [**] days after Harvard invoices Licensee.

 

5.

All other terms and conditions of the License Agreement shall remain unchanged and in full force and effect.

 


 

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized representatives as of the date first written above.

 

 

 

 

 

 

 

 

 

 

President and Fellows of Harvard College

 

 

 

Tetraphase Pharmaceuticals, Inc.

 

 

 

 

 

By:

 

/s/ Isaac T. Kohlberg

 

 

 

By:

 

/s/ David C. Lubner

 

 

 

 

 

Name:

 

Isaac T. Kohlberg

 

 

 

Name:

 

David C. Lubner

 

 

 

 

 

Title:

 

Sr. Associate Provost

 

 

 

Title:

 

SVP, COO

 

 

Chief Technology Dev. Officer

 

 

 

 

 

 

 

Amendment to License Agreement

This second Amendment to License Agreement (this “Second Amendment”) is entered into as of this 6th day of April, 2010 (the “Effective Date”), by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation, with its principal place of business at 480 Arsenal St., Suite 110, Watertown, MA 02472 (“Licensee”) and President and Fellows of Harvard College, Holyoke Center, Suite 727, 1350 Massachusetts Avenue, Cambridge, Massachusetts 01238 (“Harvard”).

WHEREAS, the parties entered into a License Agreement as of August 3, 2006 (as previously amended, the “License Agreement”), pursuant to which Harvard granted to Licensee an exclusive license under Harvard Patent Rights and Harvard’s interest in Joint Patent Rights (as such terms are defined in the License Agreement);

WHEREAS, on January 31, 2007, the parties amended the License Agreement to include a new patent application [**] under Harvard Patent Rights;

WHEREAS, Dr. Myers is an inventor of technology claimed in an additional new patent application [**] owned by Harvard that is neither a Harvard Patent Right nor a Joint Patent Right, but which claims subject matter related thereto; and

WHEREAS, Licensee wishes to obtain a license under such new patent application and Harvard wishes to grant Licensee a license thereunder;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

 

 

1.

Capitalized terms used in this Second Amendment that are not defined herein shall have the meanings set forth in the License Agreement.

 

 

2.

Section 1.10 of the License Agreement is replaced in its entirety with the following:

“Harvard Patent Rights” shall mean, in each case to the extent owned and controlled by Harvard: (a) [**] being referred to as the “Additional Patent Application”) (including the PCT applications and/or the US regular utility applications filed at or prior to the one year conversion date claiming priority to such provisional applications); (b) any patent or patent application that claims priority to and is a divisional, continuation, reissue, renewal, reexamination, substitution or extension of any patent or patent application identified in (a); (c) any patents issuing on any of the patent applications identified in (a) or (b) and any reissues, renewals, reexaminations, substitutions or extensions thereof; (d) any claim of a continuation-in-part application or patent that is entitled to the priority date of, and is directed specifically to subject matter specifically described in, at least one of the patents or patent applications identified in (a), (b) or (c); (e) any foreign counterpart of any of the patents or patent applications identified in (a), (b) or (c) or of the claims identified in (d); and (f) any claim of any United States or foreign patent or patent application to the extent specifically directed to subject matter of Harvard Inventions. The Additional Patent Application and all patents and patent applications listed in clauses (b) through (e) that correspond to the Additional Patent

 


 

Application shall be referred to herein as the “Additional Patent Rights.” For clarity, Additional Patent Rights are a subset of Harvard Patent Rights.

 

 

3.

Section 5.4 of the License Agreement is amended by adding to the end of such Section the following:

“Notwithstanding the foregoing, in the event that the Development Milestone that is not achieved and not cured under this Section 5.4 and with respect to which Licensee is in material breach is an Additional Patent Right Development Milestone (as set forth on Exhibit 1.5), then Harvard’s right to terminate this Agreement under Section 5.4 shall be limited to the Additional Patent Rights such that the license and other rights granted under this Agreement to the Additional Patent Rights shall terminate, with this Agreement otherwise remaining in full force and effect in all respects.

 

 

4.

Section 6.1 of the License Agreement is replaced in its entirety with the following:

License Issuance Fee. As partial consideration for the license granted hereunder, Licensee shall pay Harvard the following non-refundable license fees:

(a) [**] U.S. Dollars ($[**]), payable within [**] days after the date on which Licensee completes a Qualifying Financing (as defined in Section 11.2.2 below);

(b) [**] U.S. Dollars ($[**]) with respect to [**] by January 31, 2007.

(c) [**] U.S. Dollars ($[**]) with respect to the Additional Patent Rights by April 23, 2010.

 

 

5.

Section 6.3.1.4 of the License Agreement is replaced in its entirety with the following:

[**] U.S Dollars ($[**]) upon [**] with respect to such Licensed Product; provided however, that if such Licensed Product is covered by the Additional Patent Rights then the amount due for this milestone payment shall be [**] U.S Dollars ($[**]).

 

 

6.

Exhibit 1.5 of the License Agreement is replaced in its entirety with the Exhibit 1.5 attached to this Second Amendment, so as to include additional Development Milestones with respect to the Additional Patent Rights.

 

 

7.

Harvard acknowledges that Licensee has paid the license fees required by Section 6.1(a) and (b).

 

 

8.

All other terms and conditions of the License Agreement shall remain unchanged and in full force and effect.

IN WITNESS WHEREOF, the parties have caused this Second Amendment to be executed by their duly authorized representatives as of the date first written above.

 


 

 

 

 

 

President and Fellows of Harvard College

  

Tetraphase Pharmaceuticals, Inc.

 

 

By: /s/ Isaac T. Kohlberg

  

By: /s/ Guy Macdonald

 

  

 

Name: Isaac T. Kohlberg, Senior Associate Provost

  

Name: Guy Macdonald

 

  

 

Title: Chief Technology Development Officer

Office of Technology Development

Harvard University

  

Title: President & CEO

 

 


 

Exhibit 1.5

Development Milestones

 

 

1.

Licensee shall commence [**] with respect to a Licensed Product within [**] months of the Effective Date.

 

 

2.

Licensee shall commence [**] with respect to a Licensed Product within [**] months of the Effective Date.

 

 

3.

Licensee shall [**] for a Licensed Product within [**] months of the Effective Date.

The following Development Milestones (the “Additional Patent Rights Development Milestones”) will apply with respect to Licensed Products covered by the Additional Patent Rights:

 

 

1.

[**] with respect to such a Licensed Product by [**].

 

 

2.

[**] with respect to such a Licensed Product by [**].

 

 

3.

[**] with respect to such a Licensed Product by [**].

 

 

4.

[**] with respect to such a Licensed Product by [**].

 


 

Third Amendment to License Agreement

This Third Amendment to License Agreement (this “Third Amendment”) is entered into as of this 18 day of February, 2011 (the “Effective Date”), by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation, with its principal place of business at 480 Arsenal St., Suite 110, Watertown, MA 02472 (“Licensee”) and President and Fellows of Harvard College, Holyoke Center, Suite 727, 1350 Massachusetts Avenue, Cambridge, Massachusetts 01238 (“Harvard”).

WHEREAS, the parties entered into a License Agreement as of August 3, 2006 (as previously amended, the “License Agreement”), pursuant to which Harvard granted to Licensee an exclusive license under Harvard Patent Rights and Harvard’s interest in Joint Patent Rights (as such terms are defined in the License Agreement);

WHEREAS, on January 31, 2007, the parties amended the License Agreement (the “First Amendment”) to include a new patent application [**] under Harvard Patent Rights;

WHEREAS, on April 6, 2010, the parties amended the License Agreement (the “Second Amendment”) to include the Additional Patent Application (as defined in the Second Amendment) under Harvard Patent Rights; and

WHEREAS, the parties agreed in a letter dated June, 2, 2010 to include [**] for all purposes of the License Agreement as Additional Patent Rights (as defined in the Second Amendment); and

WHEREAS Dr. Myers is an inventor of technology claimed in a new patent application [**] owned by Harvard which claims subject matter related to the License Agreement;

WHEREAS, Licensee wishes to obtain a license under such new patent application and Harvard wishes to grant Licensee a license thereunder;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

 

 

1.

Capitalized terms used in this Third Amendment that are not defined herein shall have the meanings set forth in the License Agreement.

 

 

2.

Section 1.10 of the License Agreement is replaced in its entirety with the following:

“Harvard Patent Rights” shall mean, in each case to the extent owned and controlled by Harvard: (a) [**] being referred to as the “Additional Patent Applications”) (including the PCT applications and/or the US regular utility applications filed at or prior to the one year conversion date claiming priority to such provisional applications); (b) any patent or patent application that claims priority to and is a divisional, continuation, reissue, renewal, reexamination, substitution or extension of any patent or patent application identified in (a); (c) any patents issuing on any of the patent applications identified in (a) or (b) and any reissues, renewals, reexaminations, substitutions or extensions thereof; (d) any claim of a continuation-in-part application or patent that is

 


 

entitled to the priority date of, and is directed specifically to subject matter specifically described in, at least one of the patents or patent applications identified in (a), (b) or (c); (e) any foreign counterpart of any of the patents or patent applications identified in (a), (b) or (c) or of the claims identified in (d); and (f) any claim of any United States or foreign patent or patent application to the extent specifically directed to subject matter of Harvard Inventions. The Additional Patent Applications and all patents and patent applications listed in clauses (b) through (e) that correspond to the Additional Patent Applications shall be referred to herein as the “Additional Patent Rights.” For clarity, Additional Patent Rights are a subset of Harvard Patent Rights.

 

 

2.

All other terms and conditions of the License Agreement shall remain unchanged and in full force and effect.

IN WITNESS WHEREOF, the parties have caused this Third Amendment to be executed by their duly authorized representatives as of the date first written above.

 

 

 

 

President and Fellows of Harvard College

  

Tetraphase Pharmaceuticals, Inc.

 

 

By: /s/ Isaac T. Kohlberg

  

By: /s/ Guy Macdonald

 

  

 

Name: Isaac T. Kohlberg, Senior Associate Provost

  

Name: Guy Macdonald

 

  

 

Title: Chief Technology Development Officer

Office of Technology Development

Harvard University

  

Title: President & CEO

 

 

 

Exhibit 10.8

 

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Double asterisks denote omissions.

 

 

 

 

Fourth Amendment to License Agreement

This Fourth Amendment to License Agreement (this “Fourth Amendment”) is entered into as of this 5th day of December, 2017 (the “Fourth Amendment Effective Date”), by and between Tetraphase Pharmaceuticals, Inc., a Delaware corporation, with its principal place of business at 480 Arsenal Street, Suite 110, Watertown, MA 02472 (“Licensee”) and President and Fellows of Harvard College, Richard A. and Susan F. Smith Campus Center, Suite 727, 1350 Massachusetts Avenue, Cambridge, MA 02138 (“Harvard”).

WHEREAS, the parties entered into a License Agreement as of August 3, 2006 (as previously amended, the “License Agreement”), pursuant to which Harvard granted to Licensee an exclusive license under Harvard Patent Rights and Harvard’s interest in Joint Patent Rights (as such terms are defined in the License Agreement);

WHEREAS, on January 31, 2007, the parties amended the License Agreement (the “First Amendment”) to include a new patent application [**] under Harvard Patent Rights;

WHEREAS, on April 6, 2010, the parties amended the License Agreement (the “Second Amendment”) to include the Additional Patent Application (as defined in the Second Amendment) under Harvard Patent Rights;

WHEREAS, the parties agreed in a letter dated June 2, 2010 to include [**] for all purposes of the License Agreement as Additional Patent Rights (as defined in the Second Amendment);

WHEREAS, on February 18, 2011, the parties amended the License Agreement (the “Third Amendment”) to include [**] under Additional Patent Rights; and

WHEREAS, the parties wish to amend Licensee’s payment obligations under the License Agreement to assist Licensee in its efforts to enter into one or more partnerships for the development and/or commercialization of products based on the Harvard Patent Rights;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

 

1.

Capitalized terms used in this Fourth Amendment that are not defined herein shall have the meanings set forth in the License Agreement.

 

 

2.

Section 1.3 of the License Agreement is replaced in its entirety with the following:

1.3.  “Combination Product” shall mean a pharmaceutical preparation that includes one or more Non-Covered Components in addition to one or more Covered Components.  All references to Licensed Product or Royalty Product, as applicable, in this Agreement shall be deemed to include Combination Product.

 

 


 

 

 

3.

Section 1.4 of the License Agreement is replaced in its entirety with the following:

1.4.  “Covered Component” shall mean any compound (or part thereof) the production, making, use, sale or importation of which (a) falls within the scope of a Valid Claim or (b) would infringe any claim (other than any claim that has at any time been rejected by any patent examiner) made at any time in any patent or patent application within the Licensed Patent Rights as if such claim were as of such time a Valid Claim.

 

4.

Section 1.13 of the License Agreement is hereby replaced in its entirety with the following:

1.13.  “Infringed Patent” shall mean an issued and unexpired patent (a) that has not been abandoned, held invalid, revoked, held or rendered unenforceable or lost through interference and (b) the claims of which would be infringed by Licensee’s practice of the Harvard Patent Rights and/or Joint Patent Rights in the making, using, offering for sale, selling or importation of Licensed Products or Royalty Products, as applicable.

 

5.

Section 1.22 of the License Agreement is replaced in its entirety with the following:

1.22.  “Net Sales” shall mean the gross amount billed or invoiced by or on behalf of

Licensee, its Affiliates and Sublicensees (in each case, the “Invoicing Entity”) on sales, leases or other transfers of Licensed Products or Royalty Products, as applicable, less the following to the extent applicable on such sales, leases or other transfers of Licensed Products or Royalty Products, as applicable, and not previously deducted from the gross invoice price: (a) customary trade, quantity, and cash discounts to the extent actually allowed and taken; (b) amounts actually repaid or credited by reason of rejection or return of any previously sold, leased or otherwise transferred Licensed Products or Royalty Products, as applicable, and uncollectible portions of billed or invoiced amounts with respect to any previously sold, leased or otherwise transferred Licensed Products or Royalty Products, as applicable; (c) rebates, chargebacks, retroactive price reductions, allowances and fees actually paid or credited to customers, wholesalers, distributors, third party payors, governmental agencies, administrators and contractees with respect to Licensed Products or Royalty Products, as applicable, sold, leased or otherwise transferred; (d) transportation, freight and insurance charges that are paid by or on behalf of the Invoicing Entity; and (e) to the extent separately stated on purchase orders, invoices, or other documents of sale, any sales, value added or similar taxes, custom duties or other similar governmental charges levied directly on the production, sale, transportation, delivery, or use of a Licensed Product or Royalty Product, as applicable, that are paid by or on behalf of the Invoicing Entity, but not including any tax levied with respect to income; provided that:

 

(i)  in any transfers of Licensed Products or Royalty Products, as applicable, among an Invoicing Entity, Affiliates of such Invoicing Entity and Sublicensees, not for the purpose of resale by any such Affiliate or Sublicensee, Net Sales shall be equal to the fair market value of the Licensed Products or Royalty Products, as applicable, so transferred, assuming an arm’s length transaction made in the ordinary course of business; and

 

 


 

 

 

(ii)  in the event that an Invoicing Party receives non-monetary consideration for any Licensed Products or Royalty Products, as applicable, or in the case of transactions not at arm’s length with a non-Affiliate of such Invoicing Entity that is not a Sublicensee, Net Sales shall be calculated based on the fair market value of such consideration or transaction, assuming an arm’s length transaction made in the ordinary course of business.

 

Sales of Licensed Products or Royalty Products, as applicable, by an Invoicing Party to an Affiliate of such Invoicing Party or to a Sublicensee for resale by such Affiliate or Sublicensee shall not be deemed Net Sales and Net Sales shall be determined based on the gross amount invoiced or billed by such Affiliate or Sublicensee on resale to an independent third party purchaser.

 

In the event that a Licensed Product or Royalty Product, as applicable, is sold in any country in the form of a Combination Product, Net Sales of such Combination Product will be adjusted by multiplying actual Net Sales of such Combination Product (i.e., Net Sales as determined above without regard to this paragraph) in such country by the fraction A/(A+B), where A is the average invoice price in such country, of a Licensed Product or Royalty Product, as applicable, containing the same strength of Covered Component(s) that is included in such Combination Product sold without the Non-Covered Components, if sold separately in such country, and B is the average invoice price of the Non-Covered Component(s) that is included in such Combination Product in such country, if sold separately in such country. If, in a specific country, either the Covered Component(s) or the Non-Covered Component(s) is not sold separately, the relative value of the Covered Component(s) and the Non-Covered Component(s) in the Combination Product shall be negotiated in and agreed upon in good faith by the parties in order to determine the appropriate ratio for calculating Net Sales with respect to such Combination Product in such country.

 

 

6.

Section 1.30 of the License Agreement is replaced in its entirety with the following:

 

1.30.  “Sublicense” shall mean: (a) any right granted, license given, or agreement entered into by Licensee to or with any other person or entity (or by a Sublicensee to or with a further Sublicensee permitted by Section 4.2.2.4) under or with respect to or permitting any use of any of the Licensed Patent Rights, or otherwise permitting the development, manufacture, marketing, distribution, use and/or sale of Licensed Products or Royalty Products; (b) any option or other right granted by Licensee to any other person or entity (or by a Sublicensee to a further Sublicensee permitted by Section 4.2.2.4) to negotiate for or receive any of the rights described under clause (a); or (c) any standstill or similar obligation undertaken by Licensee toward any other person or entity (or by a Sublicensee toward a further Sublicensee permitted by Section 4.2.2.4) not to grant any of the rights described in clause (a) or (b) to any third party; in each case regardless of whether such grant of rights, license given or agreement entered into is referred to or is described as a sublicense. For clarity, “Sublicense” does not include any implied license that may be deemed to be granted as part of a sale of a Licensed Product.

 

 


 

 

 

 

7.

A new Section 1.34 is hereby added to the License Agreement as follows:

1.34.  “Licensee Valid Claim” shall mean: (a) a claim of an issued and unexpired patent owned by Licensee, excluding any Joint Patent Rights, that has not been (i) held permanently revoked, unenforceable, unpatentable or invalid by a decision of a court or governmental body of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, (ii) rendered unenforceable through disclaimer or otherwise, (iii) abandoned, or (iv) lost through an interference proceeding; or (b) a pending claim of a pending patent application owned by Licensee (in a particular country), excluding any Joint Patent Rights, that (i) has been asserted and continues to be prosecuted in good faith, (ii) has not been abandoned or finally rejected without the possibility of appeal or refiling and (iii) has not remained un-issued for a period of five or more years from the date of issuance of the first substantive patent office action considering the patentability of such claim by the applicable patent office in such country.

 

8.

A new Section 1.35 is hereby added to the License Agreement as follows:

1.35.  “Royalty Product” shall mean any product that contains, as an active pharmaceutical ingredient, (a) eravacycline, TP-271 or TP-6076 or (b) any compound, other than eravacycline, TP-271 or TP-6076, the composition or synthesis of which would infringe any claim (other than any claim that has at any time been rejected by any patent examiner) made at any time in any patent or patent application within the Licensed Patent Rights as if such claim were as of such time a Valid Claim.  For the avoidance of doubt, each Royalty Product shall also be deemed a Licensed Product for so long as (and only for so long as) the manufacture, use, offer for sale, sale or importation of such Royalty Product would infringe a Valid Claim.

 

9.

A new Section 1.36 is hereby added to the License Agreement as follows:

1.36.  “First Commercial Sale” shall mean the first sale for end use or consumption of a product in a country after the granting of all approvals from the relevant Regulatory Authority(ies) necessary to market and sell such product in such country.

 

10.

Section 6.4.1 of the License Agreement is replaced in its entirety with the following:

6.4.1.Royalties.  

6.4.1.1.  As partial consideration for the license granted hereunder, Licensee shall pay Harvard an amount equal to the following percentages of any Net Sales of Licensed Products, and Royalty Products that are not Licensed Products, in the United States and its districts, territories and possessions (the “US Territory”), made by Licensee and/or its Affiliates or Sublicensees:

(a)[**] percent ([**]%) of Net Sales made on Licensed Products; and

(b)[**] percent ([**]%) of Net Sales made on Royalty Products that are not Licensed Products.

 

 


 

 

6.4.1.2.  As partial consideration for the license granted hereunder, Licensee shall pay Harvard an amount equal to the following percentages of (y) Net Sales of Licensed Products in each country outside of the US Territory (the “Ex-US Territory”) made by Licensee and/or its Affiliates (but not Sublicensees):

(a)[**] percent ([**]%) of that portion of calendar year annual Net Sales of Licensed Products up to [**] U.S. Dollars ($[**]);

(b)[**] percent ([**]%) of that portion of calendar year annual Net Sales of Licensed Products in excess of [**] U.S. Dollars ($[**]) up to [**] U.S. Dollars ($[**]);

(c)[**] percent ([**]%) of that portion of calendar year annual Net Sales of Licensed Products in excess of [**] U.S. Dollars ($[**]) up to [**] U.S. Dollars ($[**]); and

(d)[**] percent ([**]%) of that portion of calendar year annual Net Sales of Licensed Products in excess of [**] U.S. Dollars ($[**]).

6.4.1.3.  As partial consideration for the license granted hereunder, Licensee shall pay Harvard an amount equal to the following percentages of (y) Net Sales of Royalty Products that are not Licensed Products in each country in the Ex-US Territory made by Licensee and/or its Affiliates (but not Sublicensees):    

(a)[**] percent ([**]%) of that portion of calendar year annual Net Sales of Royalty Products that are not Licensed Products up to [**] U.S. Dollars ($[**]);

(b)[**] percent ([**]%) of that portion of calendar year annual Net Sales of Royalty Products that are not Licensed Products in excess of [**] U.S. Dollars ($[**]) up to [**] U.S. Dollars ($[**]);

(c)[**] percent ([**]%) of that portion of calendar year annual Net Sales of Royalty Products that are not Licensed Products in excess of [**] U.S. Dollars ($[**]) up to [**] U.S. Dollars ($[**]); and

(d)[**] percent ([**]%) of that portion of calendar year annual Net Sales of Royalty Products that are not Licensed Products in excess of [**] U.S. Dollars ($[**]).

6.4.1.4.  With respect to each Royalty Product (other than Licensed Products) containing eravacycline, royalties will be payable under Sections 6.4.1.1(b) and 6.4.1.3, as applicable, until the date fifteen (15) years after the First Commercial Sale of the first Royalty Product in the first country, after which no royalties shall be due on Net Sales of Royalty Products containing eravacycline.  With respect to each Royalty Product (other than Licensed Products) containing any compound other than eravacycline (and not containing eravacycline), royalties will be payable under Sections 6.4.1.1(b) and 6.4.1.3, as applicable, on a country-by-country basis until the fifth anniversary of the expiration of the last Licensee Valid Claim that covers the composition of the first Royalty Product containing such compound in such country, after which no royalties shall be due on Net Sales of such Royalty Product in such country.  With respect to each Licensed Product,

 

 


 

 

including each Royalty Product that is also a Licensed Product, royalties will be payable under Sections 6.4.1.1(a) and 6.4.1.2 on a country-by-country basis for so long as the making, using or selling of such Licensed Product is covered by a Valid Claim in the country in which such Licensed Product is made, used or sold, after which no royalties shall be due on such Licensed Product (except, if such Licensed Product is also a Royalty Product, to the extent set forth in the first two sentences of this Section 6.4.1.4).  For clarity, no milestones will be due under Section 6.3 with respect to any Royalty Product that is not a Licensed Product.

6.4.1.5.  The parties acknowledge that the consideration terms and structure set forth in this Section 6.4.1 (a) were agreed upon for convenience purposes with the intent of compensating Harvard for the rights granted under this Agreement, including with respect to the Licensed Patent Rights and other valuable intellectual property licensed and/or transferred to Licensee, and the key role such rights and intellectual property will have in the activities of Licensee and its ability to enter into strategic relationships and (b) represent the fair market value of such rights as determined and agreed upon by the parties.  For clarity, the terms of this Section 6.4.1 with respect to any Royalty Product shall survive the termination of this Agreement if such termination occurs prior to the end of the applicable royalty period for such Royalty Product.

 

11.

Section 6.4.2 of the License Agreement is hereby deleted in its entirety.

 

 

12.

Section 6.5 of the License Agreement is replaced in its entirety with the following:

6.5.Sublicense Income.  

6.5.1As partial consideration for the license granted hereunder, Licensee shall pay Harvard (a) [**] percent ([**]%) of all Non-Royalty Sublicense Income, in connection with any Sublicense granted with rights to make and/or sell Licensed Products and/or Royalty Products solely in the Ex-US Territory, and (b) [**] percent ([**]%) of payments or other consideration that Licensee or any of its Affiliates receives in connection with a Sublicense that are royalties based on sales, leases or other transfers of Licensed Products or Royalty Products by or on behalf of Sublicensees in the Ex-US Territory (“Ex-US Sublicensee Royalties”).

6.5.2As partial consideration for the license granted hereunder, Licensee shall pay Harvard an amount equal to the following percentages of Non-Royalty Sublicense Income received in connection with any Sublicense granted that includes rights to make and/or sell Licensed Products and/or Royalty Products in the US Territory, whether or not rights are granted in any ex-US Territory:

(a)if Licensee grants such Sublicense prior to the filing of an IND with respect to any Licensed Product or Royalty Product that is the subject of such Sublicense, Licensee shall pay Harvard an amount equal to [**] percent ([**]%) of all Non-Royalty Sublicense Income received in connection with such Sublicense;

 

 


 

 

(b)if Licensee grants such Sublicense after filing of an IND but prior to the Initiation of a Phase II Clinical Trial with respect to any Licensed Product or Royalty Product that is the subject of such Sublicense, Licensee shall pay Harvard an amount equal to [**] percent ([**]%) of all Non-Royalty Sublicense Income received in connection with such Sublicense; and

(c)if Licensee grants a Sublicense after the Initiation of a Phase II Clinical Trial with respect to any Licensed Product or Royalty Product that is the subject of such Sublicense, Licensee shall pay Harvard an amount equal to [**] percent ([**]%) of all Non-Royalty Sublicense Income received in connection with such Sublicense.

6.5.3Notwithstanding anything to the contrary in this Agreement, if Licensee or any of its Affiliates receives a payment constituting Non-Royalty Sublicense Income that is directly attributable to the occurrence of a milestone event described in Section 6.3 or a circumstance substantially equivalent to such milestone event and Licensee has paid or is obligated to pay to Harvard its due share of such Non-Royalty Sublicense Income under this Section 6.5, any amounts paid under Section 6.3 with respect to such milestone may be deducted from Non-Royalty Sublicense Income on which Licensee must pay fees to Harvard under this Section 6.5.

6.5.4Licensee’s obligations under this Section 6.5 with respect to any Sublicense that includes rights to make and/or sell any Royalty Product shall expire on the expiration of Licensee’s royalty payment obligations under Section 6.4.1 with respect to such Royalty Product.  Licensee’s obligations under this Section 6.5 with respect to any Sublicense that includes rights to make and/or sell any Licensed Product that is not a Royalty Product shall expire on expiration of Licensee’s royalty payment obligations under Section 6.4.1 with respect to such Licensed Product.

 

13.

Section 7.1 of the License Agreement is replaced in its entirety with the following:

 

7.1.Reports and Payments.

 

7.1.1.Reports.  Within [**] days after the conclusion of each Calendar Quarter commencing with the first Calendar Quarter in which Net Sales are generated or Non-Royalty Sublicense Income or Ex-US Sublicensee Royalties received, Licensee shall deliver to Harvard a report containing the following information (in each instance, with a Licensed Product-by-Licensed Product or Royalty Product-by-Royalty Product, as applicable, breakdown):

 

(a)the number of units of Licensed Products or Royalty Products, as applicable, sold by Licensee and its Affiliates in the US Territory and Ex-US Territory, and by Sublicensees in the US Territory, for the applicable Calendar Quarter;

 

(b)the gross amount billed for Licensed Products or Royalty Products, as applicable, sold by Licensee and its Affiliates in the US Territory and Ex-US Territory, and by Sublicensees in the US Territory, during the applicable Calendar Quarter;

 

 

 


 

 

(c)a calculation of Net Sales by Licensee and its Affiliates in the US Territory and Ex-US Territory, and by Sublicensees in the US Territory, for the applicable Calendar Quarter, including an itemized listing of applicable deductions; and

 

(d)the total amount payable to Harvard in U.S. Dollars on Net Sales by Licensee and its Affiliates in the US Territory and Ex-US Territory, and by Sublicensees in the US Territory, for the applicable Calendar Quarter, together with the exchange rates used for conversion.

 

In addition, Licensee shall include in each such report a statement of all Non-Royalty Sublicense Income and Ex-US Sublicensee Royalties and the amounts payable to Harvard in respect thereto for the applicable Calendar Quarter.  Each such report shall be certified on behalf of Licensee as true, correct and complete in all material respects by Licensee’s Chief Financial Officer or an executive level officer with comparable authority.  If no amounts are due to Harvard for any Calendar Quarter, the report shall so state.

7.1.2.Payment for Net Sales.  Within [**] days after the end of each Calendar Quarter, Licensee shall pay Harvard all amounts due with respect to Net Sales, Non-Royalty Sublicense Income and Ex-US Sublicensee Royalties for the applicable Calendar Quarter.

 

14.

Section 7.3 of the License Agreement is replaced in its entirety with the following:

7.3.Records.  Licensee shall maintain, and shall cause its Affiliates and, with respect to the US Territory, Sublicensees to maintain, complete and accurate records of Licensed Products and Royalty Products that are made, used or sold under this Agreement, any amounts payable to Harvard in relation to such Licensed Products and Royalty Products and all Non-Royalty Sublicense Income and Ex-US Sublicensee Royalties received by Licensee and its Affiliates, which records shall contain sufficient information to permit Harvard to confirm the accuracy of any reports or notifications delivered to Harvard under Section 7.1.  Licensee, its Affiliates and/or its Sublicensees, as applicable, shall retain such records relating to a given Calendar Quarter for at least [**] years after the conclusion of that Calendar Quarter, during which time Harvard shall have the right, at its expense, to cause an independent, certified public accountant to inspect such records during normal business hours for the sole purpose of verifying any reports and payments delivered under this Agreement.  Such accountant shall enter into a confidentiality agreement reasonably satisfactory to Licensee and shall not disclose to Harvard any information other than information relating to the accuracy of reports and payments delivered under this Agreement.  The parties shall reconcile any underpayment or overpayment within [**] days after the accountant delivers the results of the audit.  In the event that any audit performed under this Section 7.3 reveals an underpayment in excess of five percent (5%) in any calendar year, the audited entity shall bear the full cost of such audit.  Harvard may exercise its rights under this Section 7.3 [**] per audited entity and only with reasonable prior notice to the audited entity.

 

15.

Section 11.1 of the License Agreement is replaced in its entirety with the following:

 

 


 

 

11.1.Term.  The term of this Agreement shall commence on the Effective Date and, unless earlier terminated as provided in this Article 11, shall continue in full force and effect (a) on a Licensed Product-by-Licensed Product and country-by-country basis until expiration of the last to expire Valid Claim of the Harvard Patent Rights and Joint Patent Rights and (b) on a Royalty Product-by-Royalty Product and country-by-country basis until expiration of Licensee’s royalty payment obligations with respect to such Royalty Product in such country under this Agreement; provided, however, that, once the making, using or selling of any Licensed Product or Royalty Product in any country is not covered by a Valid Claim within the Licensed Patent Rights or a Licensee Valid Claim, as the case may be, the license granted by Harvard to Licensee under Section 4.1 with respect to such Licensed Product or Royalty Product, as applicable, in such country will be perpetual, irrevocable, freely sublicensable and freely transferrable.

 

16.

Section 11.4 of the License Agreement is replaced in its entirety with the following:  

 

11.4.Survival.  The parties’ respective rights, obligations and duties under Articles 7 and 10 and under this Article 11, as well as any rights, obligations and duties which by their nature extend beyond the expiration or termination of this Agreement, shall survive any expiration or termination of this Agreement.  In addition, Licensee’s obligations under Section 6.5 with respect to any Sublicense granted prior to termination of the Agreement that includes rights to make and/or sell any Royalty Product shall survive termination of this Agreement and shall continue in full force and effect until the expiration of Licensee’s royalty payment obligations under Section 6.4.1 with respect to such Royalty Product.  Harvard’s obligations under Section 12.15 shall survive expiration or termination of this Agreement.  The terms of Section 6.4.1 shall survive termination of this Agreement.

 

 

17.

All other terms and conditions of the License Agreement shall remain unchanged and in full force and effect.

IN WITNESS WHEREOF, the parties have caused this Fourth Amendment to be executed by their duly authorized representatives as of the date first written above.

 

President and Fellows of Harvard College

 

Tetraphase Pharmaceuticals, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Isaac T. Kohlberg

 

By:

 

/s/ Guy Macdonald

 

 

 

 

 

 

 

 

 

Name:

 

Isaac T. Kohlberg

 

Name:

 

Guy Macdonald

 

 

 

 

 

 

 

 

 

Title:

 

Sr. Associate Provost,

 

Title:

 

CEO

 

Chief Technology Development Officer,

 

 

 

Office of Technology Development

 

 

 

Harvard University

 

 

 

 

 

 


 

 

 

 

 

Exhibit 10.9

Master Manufacturing Services Agreement

 

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission.  Double asterisks denote omission.

 

 

 

 

Master Manufacturing Services Agreement

14 JUNE 2017

 


Master Manufacturing Services Agreement

Table of Contents

ARTICLE 1

1

 

 

STRUCTURE OF AGREEMENT AND INTERPRETATION

1

 

 

 

 

 

1.1

MASTER AGREEMENT.

1

 

1.2

PRODUCT AGREEMENTS.

1

 

1.3

DEFINITIONS.

1

 

1.4

CURRENCY.

7

 

1.5

SECTIONS AND HEADINGS.

7

 

1.6

SINGULAR TERMS.

7

 

1.7

APPENDIX 1, SCHEDULES AND EXHIBITS.

7

 

 

ARTICLE 2

8

 

 

PATHEON'S MANUFACTURING SERVICES

8

 

 

 

 

 

2.1

MANUFACTURING SERVICES.

8

 

2.2

ACTIVE MATERIAL YIELD.

10

 

 

ARTICLE 3

11

 

 

CLIENT'S OBLIGATIONS

11

 

 

 

3.1

PAYMENT.

11

 

3.2

ACTIVE MATERIALS AND QUALIFICATION OF ADDITIONAL SOURCES OF SUPPLY.

12

 

 

ARTICLE 4

12

 

 

CONVERSION FEES AND COMPONENT COSTS

12

 

 

 

4.1

FIRST YEAR PRICING.

12

 

4.2

PRICE ADJUSTMENTS – SUBSEQUENT YEARS’ PRICING.

13

 

4.3

PRICE ADJUSTMENTS – CURRENT YEAR PRICING.

14

 

4.4

ADJUSTMENTS DUE TO TECHNICAL CHANGES OR REGULATORY AUTHORITY REQUIREMENTS.

15

 

4.5

MULTI-COUNTRY PACKAGING REQUIREMENTS.

15

 

 

ARTICLE 5

15

 

 

ORDERS, SHIPMENT, INVOICING, PAYMENT

15

 

 

 

5.1

ORDERS AND FORECASTS.

15

 

5.2

RELIANCE BY PATHEON.

16

 

5.3

MINIMUM ORDERS.

17

 

5.4

DELIVERY AND SHIPPING.

17

 

5.5

INVOICES AND PAYMENT.

17

 

 

ARTICLE 6

17

 

 

PRODUCT CLAIMS AND RECALLS

17

 

 

 

6.1

PRODUCT CLAIMS.

17

 

6.2

PRODUCT RECALLS AND RETURNS.

18

 

6.3

PATHEON’S RESPONSIBILITY FOR DEFECTIVE AND RECALLED PRODUCTS.

19

 

6.4

DISPOSITION OF DEFECTIVE OR RECALLED PRODUCTS.

20

 

6.5

HEALTHCARE PROVIDER OR PATIENT QUESTIONS AND COMPLAINTS.

20

 

6.6

SOLE REMEDY.

20

 

 

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Master Manufacturing Services Agreement

ARTICLE 7

22

 

 

CO-OPERATION

22

 

 

 

7.1

QUARTERLY REVIEW.

22

 

7.2

GOVERNMENTAL AGENCIES.

22

 

7.3

RECORDS AND ACCOUNTING BY PATHEON.

22

 

7.4

INSPECTION.

22

 

7.5

ACCESS.

22

 

7.6

NOTIFICATION OF REGULATORY INSPECTIONS.

23

 

7.7

REPORTS.

23

 

7.8

REGULATORY FILINGS.

23

 

 

 

 

ARTICLE 8

24

 

 

TERM AND TERMINATION

24

 

 

 

8.1

INITIAL TERM.

24

 

8.2

TERMINATION FOR CAUSE.

25

 

8.3

PRODUCT DISCONTINUATION.

25

 

8.4

OBLIGATIONS ON TERMINATION.

25

 

 

 

 

ARTICLE 9

26

 

 

REPRESENTATIONS, WARRANTIES AND COVENANTS

26

 

 

 

9.1

AUTHORITY.

26

 

9.2

CLIENT WARRANTIES.

27

 

9.3

PATHEON WARRANTIES.

27

 

9.4

PERMITS.

28

 

9.5

NO WARRANTY.

29

 

 

 

 

ARTICLE 10

29

 

 

REMEDIES AND INDEMNITIES

29

 

 

 

10.1

CONSEQUENTIAL AND OTHER DAMAGES.

29

 

10.2

LIMITATION OF LIABILITY.

29

 

10.3

PATHEON INDEMNITY.

29

 

10.4

CLIENT INDEMNITY.

30

 

10.5

REASONABLE ALLOCATION OF RISK.

30

 

 

 

 

ARTICLE 11

31

 

 

CONFIDENTIALITY

31

 

 

 

11.1

CONFIDENTIAL INFORMATION.

31

 

11.2

USE OF CONFIDENTIAL INFORMATION.

31

 

11.3

EXCLUSIONS.

31

 

11.4

PHOTOGRAPHS AND RECORDINGS.

32

 

11.5

PERMITTED DISCLOSURE.

32

 

11.6

MARKING.

33

 

11.7

RETURN OF CONFIDENTIAL INFORMATION.

33

 

11.8

REMEDIES.

33

 

 

 

 

ARTICLE 12

33

 

 

DISPUTE RESOLUTION

33

 

 

 

12.1

COMMERCIAL DISPUTES.

33

 

12.2

TECHNICAL DISPUTE RESOLUTION.

34

 

 

 

 

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Master Manufacturing Services Agreement

ARTICLE 13

34

 

 

MISCELLANEOUS

34

 

 

 

13.1

INVENTIONS.

34

 

13.2

INTELLECTUAL PROPERTY.

34

 

13.3

INSURANCE.

35

 

13.4

INDEPENDENT CONTRACTORS.

35

 

13.5

NO WAIVER.

35

 

13.6

ASSIGNMENT.

35

 

13.7

FORCE MAJEURE.

36

 

13.8

ADDITIONAL PRODUCT.

36

 

13.9

NOTICES.

36

 

13.10

SEVERABILITY.

37

 

13.11

ENTIRE AGREEMENT.

37

 

13.12

OTHER TERMS.

37

 

13.13

NO THIRD PARTY BENEFIT OR RIGHT.

37

 

13.14

EXECUTION IN COUNTERPARTS.

37

 

13.15

USE OF CLIENT NAME.

37

 

13.16

TAXES.

38

 

13.17

GOVERNING LAW.

39

 

 

 

 

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Master Manufacturing Services Agreement

MASTER MANUFACTURING SERVICES AGREEMENT

THIS MASTER MANUFACTURING SERVICES AGREEMENT (the "Agreement") is made as of 14 June 2017 (the “Effective Date”)

B E T W E E N:

PATHEON UK LIMITED, a corporation existing under the laws of England of Kingfisher Drive, Covingham, Swindon, SN3 5BZ

("Patheon"),

- and –

TETRAPHASE PHARMACEUTICALS, INC.,
a corporation existing under the laws of Delaware

of 480 Arsenal Street, Suite 100, Watertown, Massachusetts 02472, USA

("Client").

 

THIS AGREEMENT WITNESSES THAT in consideration of the rights conferred and the obligations assumed herein, and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), and intending to be legally bound the parties agree as follows:

 

ARTICLE 1

Structure of Agreement and Interpretation

1.1

Master Agreement.

This Agreement establishes the general terms and conditions under which Patheon or any Affiliate of Patheon may perform Manufacturing Services for Client or any Affiliate of Client, at the manufacturing site where Patheon or the Affiliate of Patheon resides. This “master” form of agreement is intended to allow the parties, or any of their Affiliates, to contract for the manufacture of multiple Products through Patheon’s global network of manufacturing sites through the issuance of site specific Product Agreements without having to re-negotiate the basic terms and conditions contained herein.

1.2

Product Agreements.

This Agreement is structured so that a Product Agreement may be entered into by the parties for the manufacture of a particular Product or multiple Products at a Patheon manufacturing site. Each Product Agreement will be governed by the terms and conditions of this Agreement unless the parties to the Product Agreement expressly modify the terms and conditions of this Agreement in the Product Agreement.   Unless otherwise agreed by the parties, each Product Agreement will be in the general form and contain the information set forth in Appendix 1 hereto.       

1.3

Definitions.

The following terms will, unless the context otherwise requires, have the respective meanings set out below and grammatical variations of these terms will have corresponding meanings:

"Active Materials", “Active Pharmaceutical Ingredients” or “API” means the materials listed in a Product Agreement on Schedule D;

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Master Manufacturing Services Agreement

"Active Materials Credit Value" means the value of the Active Materials for certain purposes of this Agreement, as set forth in a Product Agreement on Schedule D;

Actual Annual Yield” or “AAY” has the meaning specified in Section 2.2(a);

Actual Yearly Volume” or “AYV” has the meaning specified in Section 4.2.1;

"Affiliate" means:

 

(a)

a business entity which owns, directly or indirectly, a controlling interest in a party to this Agreement, by stock ownership or otherwise; or

 

(b)

a business entity which is controlled by a party to this Agreement, either directly or indirectly, by stock ownership or otherwise; or

 

(c)

a business entity, the controlling interest of which is directly or indirectly common to the majority ownership of a party to this Agreement;

For this definition, "control" means the ownership of shares carrying at least a majority of the votes for the election of the directors;

“Annual Product Review Report” means the annual product review report prepared by Patheon or an Affiliate of Patheon as described in Title 21 of the United States Code of Federal Regulations, Section 211.180(e);

"Annual Report" means the annual report to the FDA prepared by Client regarding the Product as described in Title 21 of the United States Code of Federal Regulations, Section 314.81(b)(2);

"Annual Volume" means the minimum volume of Product to be manufactured in any Year of this Agreement as set forth in Schedule B of the applicable Product Agreement;

"Applicable Laws" means (i) for Patheon, the Laws of the jurisdiction where the Manufacturing Site is located and all other Laws applicable to the Manufacturing Services; and (ii) for Client and the Products, the Laws of all jurisdictions where the Products are manufactured, distributed, and marketed by or on behalf of Client as these are agreed and understood by the parties in this Agreement;

"Authority" means any governmental or regulatory authority, department, body or agency or any court, tribunal, bureau, commission or other similar body, whether federal, state, provincial, county or municipal;

Breach Notice” has the meaning specified in Section 8.2(a);

"Business Day" means a day other than a Saturday, Sunday or a day that is a statutory holiday in the United Kingdom or a federal or state holiday in Boston, Massachusetts, USA or the jurisdiction where the Manufacturing Site is located;  

Capital Equipment Agreement” means a separate agreement that the parties may enter into that will address responsibility for the purchase of capital equipment and facility modifications that may be required to perform the Manufacturing Services under a particular Product Agreement;

Certificate of Analysis” means a document prepared by Patheon, signed by an authorized representative of Patheon, describing Specifications for, and testing methods applied to each

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Master Manufacturing Services Agreement

batch of Product, and the results thereof and (a) listing the manufacturing date, unique batch number, and quantity of Product in such Batch, and (b) certifying that such batch was manufactured in accordance with Applicable Laws, including, without limitation cGMP.

Certificate of Compliance” means a document, signed by an authorized representative of Patheon, attesting that a particular batch of Product was manufactured, filled, packaged and held in accordance with Applicable Laws, including, without limitation cGMP, and the Specifications.

"cGMPs" means, as applicable, current good manufacturing practices, including as described in:

 

(a)

Parts 210 and 211 of Title 21 of the United States' Code of Federal Regulations;

 

(b)

EC Directive 2003/94/EC;

 

(c)

ICH Q7A “ICH Good Manufacturing Practices Guide for Active Pharmaceutical Ingredients”; and

 

(d)

Division 2 of Part C of the Food and Drug Regulations (Canada);

together with the latest Health Canada, Japanese PMDA (to the extent applicable), FDA and EMA guidance documents pertaining to manufacturing and quality control practice, all as updated, amended and revised from time to time;

“Client Intellectual Property” means Intellectual Property (a) generated or derived by or on behalf of Client (i) before entering into this Agreement or (ii) during the Term and outside the performance of this Agreement, or (b) by Patheon while performing any Manufacturing Services or otherwise generated or derived by Patheon in its business which Intellectual Property is specific to, or is dependent upon, Client’s Active Material or Product;

Client Property” has the meaning specified in Section 8.4(a)(v);

Client-Supplied Components” means those Components to be supplied by Client as set forth in a Product Agreement or that have been supplied by Client;

"Components" means, collectively, all packaging components, raw materials, ingredients, and other materials (including labels, product inserts and other labelling for the Products) required to manufacture the Products in accordance with the Specifications, other than the Active Materials;

Confidential Information” has the meaning specified in Section 11.1;

CTD” has the meaning specified in Section 7.8(c);

Deficiencies” have the meaning specified in Section 7.8(d);

"Deficiency Notice" has the meaning specified in Section 6.1(a);

“Delivery Date” means the date scheduled for shipment of Product under a Firm Order as set forth in Section 5.1(d);

“Disclosing Party” has the meaning specified in Section 11.1;

"EMA" means the European Medicines Agency, or any successor agency thereto;

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Master Manufacturing Services Agreement

"FDA" means the United States Food and Drug Administration, or any successor agency thereto;

"Firm Orders" have the meaning specified in Section 5.1(c);

Force Majeure Event” has the meaning specified in Section 13.7;

"GST" has the meaning specified in Section 13.16(a)(iii);

"Health Canada" means the section of the Canadian Government known as Health Canada, or any successor agency thereto, and includes, among other departments, the Therapeutic Products Directorate and the Health Products and Food Branch Inspectorate;

Importer of Record” has the meaning specified in Section 3.2(a);

Initial Product Term” has the meaning specified in Section 8.1;

Initial Term” has the meaning specified in Section 8.1;

"Intellectual Property" means (a) ideas, concepts, discoveries, inventions, developments, know-how, trade secrets, techniques, methodologies, formulae, processing parameters, designs, modifications, innovations, improvements, writings, documentation, electronic code, data and rights (whether or not protectable under state, federal or foreign patent, trademark, copyright or similar laws) or the like, whether or not written or otherwise fixed in any form or medium, regardless of the media on which contained and whether or not patentable or copyrightable and (b) any and all rights in any of the foregoing, including without limitation, patents, trademarks, copyrights and trade secrets;

"Invention" means any innovation, improvement, modification, development, discovery, computer program, device, trade secret, method, know-how, process, technique or the like, whether or not written or otherwise fixed in any form or medium, regardless of the media on which it is contained and whether or not patentable or copyrightable;

"Inventory" means all inventories of Components and work-in-process produced or held by Patheon for the manufacture of the Products but, for greater certainty, does not include the Active Materials;

“Japanese PMDA” means the Japan Pharmaceuticals and Medical Devices Agency or any successor agency thereto;

"Laws" means all laws, statutes, ordinances, regulations, rules, by-laws, judgments, decrees or orders of any Authority;

“Long Term Forecast” has the meaning specified in Section 5.1(a);

"Manufacturing Services" means the manufacturing, quality control, quality assurance, stability testing, packaging, and related services, as set forth in this Agreement, required to manufacture and supply Product or Products using the Active Materials and Components;

"Manufacturing Site" means the facility owned and operated by Patheon or an Affiliate of Patheon where the Manufacturing Services will be performed as identified in a Product Agreement;

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Master Manufacturing Services Agreement

“Master Batch Record” or “MBR” shall mean the document containing the complete process for manufacturing the Product, including process parameters and process specifications.

“Materials” means all Components required to manufacture the Products in accordance with the Specifications, other than the Active Materials;

"Minimum Order Quantity" means the minimum number of batches of a Product to be produced during the same cycle of manufacturing as set forth in a Product Agreement on Schedule B;

"Maximum Credit Value" means the maximum value of Active Materials that may be credited by Patheon under this Agreement, as set forth in a Product Agreement on Schedule D;

Obsolete Stock” has the meaning specified in Section 5.2(b);

Patheon Competitor” means an entity that derives greater than [**] percent ([**]%) of its revenues from performing contract pharmaceutical development or commercial manufacturing services pursuant to agreements with unrelated third party entities;  

“Patheon Intellectual Property” means Intellectual Property generated or derived by Patheon before performing any Manufacturing Services, developed by Patheon while performing the Manufacturing Services, or otherwise generated or derived by Patheon in its business which Intellectual Property is not specific to, or dependent upon, Client’s Active Material or Product including, without limitation, Inventions and Intellectual Property which may apply to manufacturing processes or the formulation or development of drug products, drug product dosage forms or drug delivery systems unrelated to the specific requirements of the Product(s);

“Price” means the price set forth in the applicable Product Agreement, measured in U.S. dollars (if the Manufacturing Site is located in North America) or Euros (if the Manufacturing Site is located outside North America) unless agreed otherwise in a Product Agreement, to be charged by Patheon for performing the Manufacturing Services, and includes the cost of Components (other than Client-Supplied Components), certain cost items as set forth in a Product Agreement on Schedule B, and annual stability testing costs as set forth in a Product Agreement on Schedule C;

"Product(s)" means the product(s) listed in a Product Agreement on Schedule A;

Product Agreement” means the agreement between Patheon and Client issued under this Agreement in the form set forth in Appendix 1 (including Schedules A to D) under which Patheon will perform Manufacturing Services at a particular Manufacturing Site;

Product Claims” have the meaning specified in Section 6.3(c);

"Quality Agreement" means the agreement (the general form of which is set forth in Exhibit B) between the parties entering a Product Agreement, or between the applicable Affiliate of Patheon and Client if the Manufacturing Services are subcontracted to such Affiliate by Patheon, that sets out the quality assurance standards for the Manufacturing Services to be performed by Patheon for Client;

Recall” has the meaning specified in Section 6.2(a);

Recipient” has the meaning specified in Section 11.1;

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Master Manufacturing Services Agreement

"Regulatory Authority" means the FDA, EMA, Health Canada, Japanese PMDA (to the extent applicable) and any other foreign regulatory agencies competent to grant marketing approvals for pharmaceutical products including the Products in the Territory;

Regulatory Approval” has the meaning specified in Section 7.8(a);

Remediation Period” has the meaning specified in Section 8.2(a);

Representatives” means a party’s directors, officers, employees, advisers, agents, consultants, subcontractors (only to the extent approved by Client with respect to Patheon subcontractors),  professional advisors, or other representatives;

“Resident Jurisdiction" has the meaning specified in Section 13.16(a)(i);

Shortfall Credit” has the meaning specified in Section 2.2(b);

"Specifications" means the file, for each Product, which is given by Client to Patheon in accordance with the procedures listed in a Product Agreement on Schedule A and which contains documents relating to each Product, including, without limitation:

 

(a)

specifications for Active Materials and Components;

 

(b)

manufacturing specifications, directions, and processes;

 

(c)

storage requirements;

 

(d)

all environmental, health and safety information for each Product including material safety data sheets; and

 

(e)

the finished Product specifications, packaging specifications and shipping requirements for each Product;

all as updated, amended and revised from time to time by Client in accordance with the terms of this Agreement;

Target Yield” has the meaning specified in Section 2.2(a);

Target Yield Determination Batches” has the meaning specified in Section 2.2(a);

"Tax" or "Taxes" have the meaning specified in Section 13.16(a);

"Technical Dispute" has the meaning specified in Section 12.2;

"Territory" means the geographic area described in a Product Agreement where Products manufactured by Patheon will be distributed by Client;

Third Party” means a party other than Patheon or its Affiliates or Client or its Affiliates.

"Third Party Rights" means the Intellectual Property of any Third Party;

"VAT" has the meaning specified in Section 13.16(d);

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Master Manufacturing Services Agreement

"Year" means in the first year of this Agreement or in the first year of a Product Agreement, the period from the Effective Date up to and including December 31 of the same calendar year, and thereafter will mean a calendar year;

Yearly Forecast Volume” or “YFV” has the meaning specified in Section 4.2.1;

Zero Forecast Period has the meaning specified in Section 5.1(f).

1.4

Currency.  

Unless otherwise agreed in a Product Agreement, all monetary amounts expressed in this Agreement are in United States dollars (USD) (if the Manufacturing Site is located in North America) or Euros (if the Manufacturing Site is located outside North America).

1.5

Sections and Headings.  

The division of this Agreement into Articles, Sections, Subsections, an Appendix, Schedules and Exhibits and the insertion of headings are for convenience of reference only and will not affect the interpretation of this Agreement.  Unless otherwise indicated, any reference in this Agreement to a Section, Appendix, Schedule or Exhibit refers to the specified Section, Appendix, Schedule or Exhibit to this Agreement.  In this Agreement, the terms "this Agreement", "hereof", "herein", "hereunder" and similar expressions refer to this Agreement as a whole and not to any particular part, Section, Appendix, Schedule or Exhibit of this Agreement.

1.6

Singular Terms.

Except as otherwise expressly stated or unless the context otherwise requires, all references to the singular will include the plural and vice versa.

1.7

Appendix 1, Schedules and Exhibits.

Appendix 1 (including the Schedules thereto) and the following Exhibits are attached to, incorporated in, and form part of this Agreement:

Appendix 1  -  Form of Product Agreement (Including Schedules A to D)

Exhibit A  -  Technical Dispute Resolution

Exhibit B  -  Commercial Quality Agreement

Exhibit C  -  Quarterly Active Materials Inventory Report

Exhibit D  -  Report of Annual Active Materials Inventory Reconciliation and Calculation of Actual Annual Yield

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Master Manufacturing Services Agreement

ARTICLE 2

PATHEON'S MANUFACTURING services

2.1

Manufacturing Services.

Patheon will perform the Manufacturing Services for the Territory for the fees specified in a Product Agreement in Schedules B and C to manufacture Products for Client or its Affiliate (which shall mean that either Client or its Affiliate would enter into a Product Agreement with Patheon).  Schedule B to a Product Agreement sets forth a list of cost items that are included in the Price for Products; all cost items that are not included in the Price are subject to additional fees to be paid by the Client.  Amendments to the fees set out in Schedules B and C to a Product Agreement will be performed in accordance with the price adjustment mechanisms as set forth in Article 4. Patheon may change the Manufacturing Site for the Products only with the prior written consent of Client. In performing the Manufacturing Services, Patheon and Client agree that:

 

(a)

Conversion of Active Materials and Components.  Patheon will convert Active Materials and Components into Products.

 

(b)

Master Batch Record.  The Master Batch Record shall be reviewed and approved in writing by Patheon and by Client prior to commencement of Manufacturing Services. Any material change to an approved Master Batch Record shall be reviewed and approved in writing by Patheon and by Client prior to said change being implemented.  Each batch of Product shall be manufactured by using a copy of the Master Batch Record. Each copy of the Master Batch Record for such batch of Product shall be assigned a unique batch number. Any deviation from the manufacturing process specified in the Master Batch Record must be documented in the batch record for that batch.  

 

(c)

Quality Control and Quality Assurance.  Patheon will perform the quality control and quality assurance testing specified in the Quality Agreement and otherwise as required to comply with cGMP.  Batch review and release to Client will be the responsibility of Patheon’s quality assurance group.  Patheon will perform its batch review and release responsibilities in accordance with Patheon’s standard operating procedures.  Each time Patheon ships Products to Client, it will give Client a Certificate of Analysis and Certificate of Compliance, BSE/BTE and melamine statement, and a statement that the batch has been manufactured and tested in accordance with Specifications and cGMPs.  Client will have sole responsibility for the release of Products to the market. The form and style of batch documents, including, but not limited to, batch production records, lot packaging records, equipment set up control, operating parameters, and data printouts, raw material data, and laboratory notebooks are the exclusive property of Patheon. Specific Product related information contained in those batch documents is the exclusive property of Client.

 

(d)

Components.  Patheon will purchase and test all Components (with the exception of Client-Supplied Components) at Patheon's expense and as required by the Specifications.    

 

(e)

Stability Testing.  Patheon will conduct stability testing on the Products in accordance with the protocols set out in the Specifications for the separate fees and during the time periods set out in Schedule C to a Product Agreement.  Patheon will not make any changes to these testing protocols without prior written approval from Client.  If a confirmed stability test failure occurs, Patheon will notify Client within [**], after which Patheon and Client will jointly determine the proceedings and methods to be undertaken

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Master Manufacturing Services Agreement

 

to investigate the cause of the failure, including which party will bear the cost of the investigation. Patheon will not be liable for these costs unless it has failed to perform the Manufacturing Services or testing in accordance with the Specifications and cGMPs.  Client shall own all stability test data and results and Patheon will give Client all stability test data and results at Client’s request.  

 

(f)

Packaging and Artwork.  Patheon will package the Products in accordance with the Specifications.  Client will own all artwork and shall be responsible for the cost of artwork development. Specifically, Client will be responsible for supplying Patheon with digital artwork necessary to enable Patheon to supply Products fully finished ready for sale by the Client, incorporating Client’s trademark(s), livery and text.  The Client will also be responsible for the cost of proofing and of production of the printing plates required by Patheon to assemble, package and supply the Products and for the approval of final proofs generated by the printer.  All such artwork, trademarks, livery and text shall be the property of Client and Patheon shall obtain no rights therein.  Patheon will determine and imprint the batch numbers and expiration dates for each Product shipped.  The batch numbers and expiration dates will be affixed on the Products and on the shipping carton of each Product as outlined in the Specifications and as required by cGMPs.  Client may, in its sole discretion, make changes to labels, product inserts, and other packaging for the Products. Those changes will be submitted by Client to all applicable Regulatory Authorities and other third parties responsible for the approval of the Products to the extent required by Applicable Law.  Client will be responsible for the cost of labelling obsolescence when changes occur, as contemplated in Section 4.4.  Patheon's name will not appear on the label or anywhere else on the Products unless: (i) required by any Laws; or (ii) Patheon consents in writing to the use of its name. If necessary, at least [**] days prior to the Delivery Date of Product for which new or modified artwork is required, Client will provide at no cost to Patheon, final artwork for all packaging Components to be used in the manufacture of the Product that meet the Specifications.  For the avoidance of doubt, the parties acknowledge and agree that Client will be responsible for complying with any and all regulatory requirements for the labeling of the Product.

 

(g)

Active Materials and Client-Supplied Components.  At least [**] days before the scheduled production date, Client will deliver the Active Materials and any Client-Supplied Components to the Manufacturing Site DDP (Incoterms 2010), at no cost to Patheon, with any VAT paid by Client, to enable Patheon to manufacture the desired quantities of Product and to ship Product on the Delivery Date. If the Active Materials and/or Client-Supplied Components are not received [**] days before the scheduled production date, Patheon may delay the shipment of Product by the same number of days as the delay in receipt of the Active Materials and/or Client-Supplied Components.  But if Patheon is unable to manufacture Product to meet this new shipment date due to prior third party production commitments, Patheon may delay the shipment until a later date as agreed to by the parties. All shipments of Active Material will be accompanied by certificate(s) of analysis from the Active Material manufacturer and the Client, confirming the identity and purity of the Active Materials and its compliance with the Active Material specifications. For Active Materials or Client-Supplied Components which may be subject to import or export, Client agrees that it shall use commercially reasonable efforts to cause its vendors and carriers to comply with applicable requirements of the U.S. Customs and Border Protection Service and the Customs Trade Partnership Against Terrorism.

 

(h)

Validation Activities (if applicable).  Patheon may assist in the development and approval of the validation protocols for analytical methods and manufacturing procedures (including packaging procedures) for the Products.  The fees for this service are not included in the Price and will be set out separately in Schedule C to a Product Agreement.

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Master Manufacturing Services Agreement

 

(i)

Storage and Handling.  Patheon shall store and handle Components under appropriate GMP conditions for temperature, humidity, light and cleanliness and in accordance with any storage specifications agreed between the parties.  Patheon shall store and handle the Active Material Product in accordance with the Specifications and under appropriate GMP conditions for temperature, humidity, light and cleanliness.  In addition to the foregoing, Patheon shall store and handle the Active Materials and Products so as to prevent the commingling of same with Patheon’s own inventories and supplies, or those held by Patheon for Third Parties.

 

(j)

Subcontracting.  Patheon shall not subcontract or otherwise delegate any portion of its obligations under this Agreement without Client’s prior written approval other than to its Affiliates as provided for in Section 13.6(a).

 

(k)

Additional Services.  If Client requests services other than those expressly set forth herein or in any Product Agreement (such as qualification of a new packaging configuration or shipping studies, or validation of alternative batch sizes), Patheon will provide a good faith and reasonable written quote of the fee for the additional services and Client will advise Patheon whether it wishes to have the additional services performed by Patheon. The scope of work and fees will be set forth in a separate agreement signed by the parties. The terms and conditions of this Agreement will apply to these services.

2.2

Active Material Yield.  

 

(a)

Reporting.  Patheon will give Client a quarterly inventory report of the Active Materials held by Patheon using the inventory report form set out in Exhibit C, which will contain the following information for the quarter:

Quantity Received:  The total quantity of Active Materials that complies with the Specifications and is received at the Manufacturing Site during the applicable period.

Quantity Dispensed:  The total quantity of Active Materials dispensed at the Manufacturing Site during the applicable period.  The Quantity Dispensed is calculated by adding the Quantity Received to the inventory of Active Materials that complies with the Specifications held at the beginning of the applicable period, less the inventory of Active Materials that complies with the Specifications held at the end of the period.  The Quantity Dispensed will only include Active Materials received and dispensed in commercial manufacturing of Products and, for certainty, will not include any (i) Active Materials that must be retained by Patheon as samples, (ii) Active Materials contained in Product that must be retained as samples, (iii) Active Materials used in testing as required under this Agreement (if applicable), and (iv) Active Materials received or dispensed in technical transfer activities or development activities under this Agreement during the applicable period, including without limitation, any regulatory, stability, validation or test batches manufactured during the applicable period.

Quantity Converted:  The total amount of Active Materials contained in the Products manufactured with the Quantity Dispensed (including any additional Products produced in accordance with Section 6.3(a) or 6.3(b)), delivered by Patheon, and not rejected, recalled or returned in accordance with Section 6.1or 6.2 because of Patheon’s failure to perform the Manufacturing Services and supply Product in accordance with Specifications, cGMPs, and Applicable Laws.  

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Master Manufacturing Services Agreement

Within [**] days after the end of each Year, Patheon will prepare an annual reconciliation of Active Materials on the reconciliation report form set forth in Exhibit D including the calculation of the "Actual Annual Yield" or "AAY" for the Product at the Manufacturing Site during the Year. AAY is the percentage of the Quantity Dispensed that was converted to Products and is calculated as follows:

 

Quantity Converted during the Yearx   100%

Quantity Dispensed during the Year

After Patheon has produced a minimum of [**] successful commercial production batches if the Manufacturing Site is outside of North America or [**] successful commercial production batches if the Manufacturing Site is in North America of Product and has produced commercial production batches for at least [**] months at the Manufacturing Site (collectively, the "Target Yield Determination Batches"), the parties will agree on the target yield for the Product at the Manufacturing Site (each, a "Target Yield"). The Target Yield will be revised annually to reflect the actual manufacturing experience as agreed to by the parties, such agreement not to be unreasonably withheld.

 

(b)

Shortfall Credit Calculation.  If the Actual Annual Yield falls more than [**] percent ([**]%) below the respective Target Yield in a Year, then the shortfall for the Year (the "Shortfall") will be calculated as follows:

Shortfall Credit = [**]

 

(c)

Credit for Shortfall.  If there is a Shortfall for a Product in a Year, then Patheon will credit Client’s account for the amount of the Shortfall not later than [**] days after the end of the Year. Each credit under this Section 2.2(c) will be summarized on the reconciliation report form set forth in Exhibit D. Upon expiration or termination of a Product Agreement, any remaining credit owing under this Section will be paid to Client.  The Annual Shortfall, if any, will be disclosed by Patheon on the reconciliation report form.

 

(d)

Maximum Credit.  Patheon's liability for Active Materials calculated in accordance with this Section 2.2 for any Product in a Year will not exceed, in the aggregate, the Maximum Credit Value set forth in Schedule D to a Product Agreement.

 

(e)

No Material Breach.  It will not be a material breach of this Agreement by Patheon under Section 8.2(a) if the Actual Annual Yield is less than the Target Yield.

ARTICLE 3

CLIENT'S OBLIGATIONS

3.1

Payment.

Client will pay Patheon for performing the Manufacturing Services according to the Prices specified in Schedules B and C in a Product Agreement. These Prices may be subject to adjustment under other parts of this Agreement.  

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Master Manufacturing Services Agreement

3.2

Active Materials and Qualification of Additional Sources of Supply.

 

(a)

Client will at its sole cost and expense deliver the Active Materials to Patheon in accordance with Section 2.1(g). If applicable, Patheon and the Client will reasonably cooperate to permit the import of the Active Materials to the Manufacturing Site. Client’s obligation will include obtaining the proper release of the Active Materials from the applicable Customs Agency and Regulatory Authority. Client or Client’s designated broker will be the “Importer of Record” for Active Materials imported to the Manufacturing Site. The Active Materials will be held by Patheon on behalf of Client as set forth in this Agreement.  Title to the Active Materials will at all times remain the property of Client.  Any Active Materials received by Patheon will only be used by Patheon to perform the Manufacturing Services for Client hereunder. Client will be responsible for paying for all rejected Product that arises from defects in the Active Materials which (i) could not be reasonably discoverable by Patheon using the test methods set forth in the Specifications; and (ii) are not due to the failure by Patheon to perform the Manufacturing Services in accordance with the Specifications, cGMPs, or Applicable Laws or the wilful misconduct of Patheon.

 

(b)

If Client asks Patheon to qualify an additional source for the Active Material or any Component, Patheon shall evaluate the Active Material or Component to be supplied by the additional source to determine if it is suitable for use in the Product. The parties will agree on the scope of work to be performed by Patheon at Client’s cost. For an Active Material, this work at a minimum will include: (i) laboratory testing to confirm the Active Material meets existing specifications; (ii) manufacture of an experimental batch of Product that will be placed on [**] months accelerated stability; and (iii) manufacture of [**] full-scale validation batches that will be placed on concurrent stability (one batch may be the registration batch if manufactured at full scale).

 

(c)

Patheon will promptly advise Client if it encounters supply problems, including delays and/or delivery of non-conforming Active Material or Components from a Client designated additional source; and Patheon and Client will cooperate to reduce or eliminate any supply problems from these additional sources of supply. Client will be obligated to certify all Client designated sources of supply on an annual basis at its expense and will provide Patheon with copies of these annual certifications. If Patheon agrees to certify a Client designated additional sources of supply on behalf of Client, it will do so at Client’s expense.     

ARTICLE 4

CONVERSION fees AND COMPONENT COSTS

4.1

First Year Pricing.

The Price for the first Year will be listed in Schedules B and C in a Product Agreement and will be subject to the adjustments set forth in Sections 4.2 and 4.3. Either party may, upon written notice to the other party, request that the Price be increased or decreased if there are changes to the underlying manufacturing, packaging or testing assumptions set forth in Schedule B of the Product Agreement that result in an increase or decrease in the cost of performing the Manufacturing Services. Within [**] days after receipt of such notice, the parties shall meet and negotiate in good faith an adjustment to the Price to reflect such increase or decrease due to the change in assumptions.  The party requesting such adjustment shall provide the other party supporting documentation to substantiate the requested adjustment to Price.

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Master Manufacturing Services Agreement

4.2

Price Adjustments Subsequent Years’ Pricing.

After the first Year of the Product Agreement, Patheon may adjust the Price effective January 1st of each Year as follows:

 

(a)

Manufacturing and Stability Testing Costs. Patheon may adjust the conversion component of the Price and the annual stability testing costs for inflation, based upon the preliminary number for any increase in the inflation index stated in the Product Agreement in August of the preceding Year compared to the final number for the same month of the Year prior to that, unless the parties otherwise agree in writing.  On or before [**] of each Year, Patheon will give Client a statement setting forth the calculation for the inflation adjustment to be applied in calculating the Price for the next Year. In no event shall any increase over the preceding Year pursuant to this Section 4.2(a) exceed [**] percent ([**]%) during the first [**] Years of a Product Agreement.  Thereafter, this restriction shall not apply.

 

(b)

Component Costs.  If Patheon incurs an increase in Component costs during the Year, it may increase the Price for the next Year to pass through the additional Component costs at Patheon’s cost.  On or before [**] of each Year, Patheon will give Client information about the increase in Component costs which will be applied to the calculation of the Price for the next Year to reasonably demonstrate that the Price increase is justified.  But Patheon will not be required to give information to Client that is subject to obligations of confidentiality between Patheon and its suppliers.

 

(c)

Pricing Basis.  Client acknowledges that the Price in any Year is quoted based upon the Minimum Order Quantity and the Annual Volume specified in Schedule B to a Product Agreement.  The Price is subject to change if the specified Minimum Order Quantity changes or if the Annual Volume is not ordered in a Year.  For greater certainty, if Patheon and Client agree that the Minimum Order Quantity will be reduced or the Annual Volume in the lowest tier will not be ordered in a Year whether as a result of a decrease in estimated Annual Volume or otherwise and, as a result of the reduction, Patheon demonstrates to Client that its costs to perform the Manufacturing Services or to acquire the Components for the Product will increase on a per unit basis (including the amount of the increase), then Patheon may increase the Price by an amount sufficient to absorb the documented increased costs.  On or before [**] of each Year, Patheon will give Client a statement setting forth the information to be applied in calculating those cost increases for the next Year.  But Patheon will not be required to give information to Client that is subject to obligations of confidentiality between Patheon and its suppliers.  

 

(d)

Tier Pricing (if applicable). The pricing in Schedule B of a Product Agreement is set forth in Annual Volume tiers based upon the Client’s volume forecasts under Section 5.1.  The Client will be invoiced during the Year for the unit price set forth in the Annual Volume tier based on the [**] month forecast provided in September of the previous Year.  Within [**] days after the end of each Year or of the termination of the Agreement, Patheon will send Client a reconciliation of the actual volume of Product ordered by the Client during the Year with the pricing tiers.  If Client has overpaid during the Year, Patheon will issue a credit to the Client for the amount of the overpayment within [**] days after the end of the Year or will issue payment to the Client for the overpayment within [**] days after the termination of the Agreement.  If Client has underpaid during the Year, Patheon will issue an invoice to the Client under Section 5.5 for the amount of the underpayment within [**] days after the end of the Year or termination of the Agreement.  If Client disagrees with the reconciliation, the parties will work in good faith to resolve the disagreement amicably. If the parties are unable to resolve the disagreement within [**] days, the matter will be handled under Section 12.1.       

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Master Manufacturing Services Agreement

 

(e)

For all Price adjustments under this Section 4.2, Patheon will deliver to Client on or before [**] of each Year a revised Schedule B to the Product Agreement to be effective for Product delivered on or after the first day of the next Year. If in any Year Patheon would have been entitled to increase the Price based on any of the provisions of this Section 4.2 but Patheon did not exercise its right to do so, then at the expiry of any subsequent Year, Patheon will be entitled to make cumulative adjustments as set out in Section 4.2 based on changes during all of the preceding Years since Patheon last adjusted the Price.

 

4.2.1

Price Adjustment due to Volume Changes from Yearly Forecast Volumes for Sterile Products.

On the execution of a Product Agreement, Client will give to Patheon a forecast of the volume of Product required for the first [**] Years of the Product Agreement (the “Yearly Forecast Volume” or “YFV”) that will become part of the Product Agreement.  If at the end of the first Year the aggregate actual volume of Product ordered by Client and invoiced by Patheon under Section 5.5 (“Actual Yearly Volume” or “AYV”) during the Year is less than the YFV as set out in the Product Agreement, then Client will pay Patheon for its non-absorbed fixed manufacturing costs incurred during the Year in an amount to be determined as follows:

Amount due to Patheon  =    [**].

On or before [**] of each Year, the parties will agree on the YFV for the next [**] Years of the Product Agreement on a rolling forward basis.  The forecast of the volume of Product for the [**] Year may not vary by more than [**]% from the original YFV for the [**] Year.  Once agreed, the YFV for the next Year will become binding on the parties and any amount due to Patheon will be determined as set forth above.

4.3

Price Adjustments – Current Year Pricing.

During any Year, the Prices set out in Schedule B of a Product Agreement will be adjusted as follows:

Extraordinary Increases in Component Costs.  If, at any time, market conditions result in Patheon's cost of Components being materially greater than normal forecasted increases, then Patheon will be entitled to adjust the Price for any affected Product to compensate it for the increased Component costs.  Changes materially greater than normal forecasted increases will have occurred if: (i) the cost of a Component increases by [**]% of the cost for that Component upon which the most recent Price or fee quote was based; or (ii) the aggregate cost for all Components required to manufacture a Product increases by [**]% of the total Component costs for the Product upon which the most recent fee quote was based.  If Component costs have been previously adjusted to reflect an increase in the cost of one or more Components, the adjustments set out in (i) and (ii) above will operate based on the last cost adjustment for the Components.

For a Price adjustment under this Section 4.3, Patheon will deliver to Client a revised Schedule B to the Product Agreement and budgetary pricing information, adjusted Component costs or other documents reasonably sufficient to demonstrate that a Price adjustment is justified.  Patheon will have no obligation to deliver any supporting documents that are subject to obligations of confidentiality between Patheon and its suppliers.  The revised Price will be effective for any Product delivered on or after the first day of the month following Client’s receipt of the revised Schedule B to the Product Agreement.

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Master Manufacturing Services Agreement

4.4

Adjustments Due to Technical Changes or Regulatory Authority Requirements.

Amendments to the Specifications or the Quality Agreement requested by Client will be implemented only following a technical and cost review that Patheon will perform at Client’s cost and are subject to Client and Patheon reaching agreement on Price changes required because of the amendment. Amendments to the Specifications, the Quality Agreement, or the Manufacturing Site requested by Patheon will only be implemented following the written approval of Client, the approval not to be unreasonably withheld, conditioned or delayed. If Client accepts a proposed Price change, the proposed change in the Specifications or the Quality Agreement and the associated scope of work will be implemented with the costs to be allocated between the parties as mutually agreed in writing, and the Price change will become effective, only for those orders of Product that are manufactured under the revised Specifications; provided that the parties agree that if such changes are implemented due to a regulatory requirement that applies generally to the Product as well as to other products manufactured by Patheon for itself or for third parties, then Client shall pay a pro rata amount of the reasonable cost of such regulatory changes.  In addition, Client agrees to purchase, at the price paid by Patheon (including all costs incurred by Patheon for the purchase, handling and transport of the Inventory), all Inventory held under the "old" Specifications and purchased or maintained by Patheon in order to fill Firm Orders or under Section 5.2, if the Inventory can no longer be used under the revised Specifications; provided that Patheon shall use reasonable efforts to mitigate such costs.  Patheon shall, where possible, cancel open purchase orders for Components no longer required under any revised Specifications that were placed by Patheon with suppliers in order to fill Firm Orders or under Section 5.2, but if the orders may not be cancelled without penalty, Client shall pay the lesser of the price for such order or such penalty. Additional payments or price increases may also be agreed to by the parties to compensate Patheon for fees and other expenses incurred by Patheon to comply with Regulatory Authority requirements which apply to the Manufacturing Services.

4.5

Multi-Country Packaging Requirements.  

If Client decides to have Patheon perform Manufacturing Services for the Product for countries outside the Territory, then Client will inform Patheon of the packaging requirements for each new country and Patheon will prepare a quotation for consideration by Client of any additional costs for Components (other than Client-Supplied Components) and the change over fees for the Product destined for each new country.  The agreed additional packaging requirements and related packaging costs and change over fees will be set out in a written amendment to this Agreement.

ARTICLE 5

ORDERS, SHIPMENT, INVOICING, PAYMENT

5.1

Orders and Forecasts.  

 

(a)

Long Term Forecast.  When each Product Agreement is executed, Client will give Patheon a non-binding [**] year forecast of Client’s estimated volume requirements for the Product for each Year during the term of the Product Agreement (the “Long Term Forecast”).  The Long Term Forecast will thereafter be updated every [**] during the Initial Product Term.  If Patheon is unable to accommodate any portion of the Long Term Forecast, it will notify Client and the parties will agree on any revisions to the forecast.

 

(b)

Rolling [**] Forecast.  When each Product Agreement is executed, Client will give Patheon a non-binding [**] forecast of the estimated volume of Product that Client expects to order in the first [**] of commercial manufacture of the Product (“Rolling Forecast”).  The Rolling Forecast will then be updated by Client on or before the [**] on a rolling forward basis.  Client will update the Rolling Forecast if it determines that the volumes estimated in the most recent Rolling Forecast have changed by more than [**] percent ([**]%). The most recent [**] forecast will prevail.

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Master Manufacturing Services Agreement

 

(c)

Firm Orders. Unless otherwise agreed in the Product Agreement, the first [**] of the Rolling Forecast will be considered binding firm orders.  The remaining [**] of each Rolling Forecast submitted by Client shall be for planning purposes only, and thus shall not be binding.  Concurrent with the [**] forecast, Client will issue a new firm written order in the form of a purchase order or otherwise (“Firm Order”) by Client to purchase and, when accepted by Patheon, for Patheon to manufacture and deliver the agreed quantity of the Products. The Delivery Date will not be less than [**] days following the date that the Firm Order is submitted. Firm Orders submitted to Patheon will specify Client's purchase order number, quantities by Product type, monthly delivery schedule, and any other elements necessary to ensure the timely manufacture and shipment of the Products.  The quantities of Products ordered in those written orders will be firm and binding on Client and may not be reduced by Client.  Expedited Firm Orders will be subject to additional fees.

 

(d)

Acceptance of Firm Order. Patheon will accept Firm Orders by sending an acknowledgement to Client within [**] Business Days of its receipt of the Firm Order; provided that Patheon may only reject a Firm Order which fails to comply with the requirements of this Article 5 or that is not consistent with the Long Term Forecast.  The acknowledgement will include, subject to confirmation from the Client, the Delivery Date for the Product ordered. The Delivery Date may be amended by agreement of the parties. If Patheon fails to acknowledge receipt of a Firm Order within the [**] Business Day period, the Firm Order will be deemed to have been accepted by Patheon.

 

(e)

Cancellation of a Firm Order.  If Client cancels a Firm Order, Client, as its sole liability for such cancellation, will pay Patheon 100% of the Price for the Firm Order.    

 

(f)

Zero Volume Forecast. Once Client has commenced issuing Firm Orders for Product, if Client subsequently forecasts zero volume for [**] period during the term of a Product Agreement (the “Zero Forecast Period”), then Patheon will have the option, at its sole discretion, to provide a [**] day notice to Client of Patheon’s intention to terminate the Product Agreement on a stated day within the Zero Forecast Period.  Client thereafter will have [**] days to either (i) withdraw the zero forecast and re-submit a reasonable volume forecast, or (ii) negotiate other terms and conditions on which the Product Agreement will remain in effect. Otherwise, Patheon will have the right to terminate the Product Agreement at the end of the [**] day notice period.

5.2

Reliance by Patheon.

(a)Client understands and acknowledges that Patheon will rely on the Firm Orders and Rolling Forecasts submitted under Section 5.1(b) in ordering the Components (other than Client-Supplied Components) required to meet the Firm Orders.  In addition, Client understands that to ensure an orderly supply of the Components, Patheon may want to purchase the Components in sufficient volumes to meet the production requirements for Products during part or all of the Rolling Forecast or to meet the production requirements of any longer period agreed to by Patheon and Client in writing.  Accordingly, Client authorizes Patheon to, and Patheon shall purchase Components to satisfy the Manufacturing Services requirements for Products for the first [**] contemplated in the most recent Rolling Forecast. Patheon may make other purchases of Components to meet Manufacturing Services requirements for longer periods if agreed to in writing by the parties.  Client will give Patheon written authorization to order Components for any launch quantities of Product requested by Client which will be considered a Firm Order when accepted by Patheon.  

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Master Manufacturing Services Agreement

(b)Client will reimburse Patheon for the cost of Components that have expired or that are rendered obsolete due to changes in artwork or applicable regulations during the period (collectively, “Obsolete Stock”). This reimbursement will include Patheon’s cost to purchase (plus a [**]% handling fee) and destroy the Obsolete Stock.

(c)If Client fails to take delivery of conforming finished Product within [**] of manufacture and release testing, Client will pay Patheon $[**] / EURO [**] per pallet, per month thereafter for storing the finished Product.  Storage fees for Product which contain controlled substances or require refrigeration will be charged at $[**] / EURO [**] per pallet per month.  Storage fees are subject to a one pallet minimum charge per month.  

5.3

Minimum Orders.

Client may order Manufacturing Services for batches of Products only in multiples of the Minimum Order Quantities as set out in Schedule B to a Product Agreement.

5.4

Delivery and Shipping.

The Product will be delivered to Client after it has been manufactured and released to the Client by Patheon. Delivery of Products will be made EXW (Incoterms 2010) Patheon’s shipping point unless otherwise agreed in a Product Agreement.  Risk of loss or of damage to Products will remain with Patheon until Patheon loads the Products onto the carrier’s vehicle for shipment at the shipping point at which time risk of loss or damage will transfer to Client. Patheon will, in accordance with Client’s instructions and as agent for Client, at Client’s risk, arrange for shipping to be paid by Client. Client will arrange for insurance and will select the freight carrier used by Patheon to ship Products and may monitor Patheon’s shipping and freight practices as they pertain to this Agreement.  Products will be transported in accordance with the Specifications.

5.5

Invoices and Payment.

Invoices will be sent by email to the email address given by Client to Patheon in writing.  Invoices will be issued when the Product is manufactured and released by Patheon to the Client.  Patheon will also submit to Client, with each shipment of Products, a duplicate copy of the invoice covering the shipment.  Patheon will also give Client an invoice covering any Inventory or Components which are to be purchased by Client under Section 5.2 of this Agreement.  Each invoice will, to the extent applicable, identify Client’s Manufacturing Services purchase order number, Product numbers, names and quantities, unit price, freight charges, and the total amount to be paid by Client.  Client will pay all undisputed invoices within [**] days after electronic receipt thereof.  If any portion of an invoice is disputed, the Client will pay Patheon for the undisputed amount and the parties will use good faith efforts to reconcile the disputed amount as soon as practicable.  Interest on undisputed past due accounts will accrue at [**] percent ([**]%) per month which is equal to an annual rate of [**] percent ([**]%).

ARTICLE 6

PRODUCT CLAIMS AND RECALLS

6.1

Product Claims.

(a)Product Claims.  Client has the right to reject any portion of any shipment of Products that deviate from the Specifications, cGMPs, or Applicable Laws, without invalidating any remainder of the shipment.  Client will inspect the Products manufactured by Patheon promptly upon receipt and will give Patheon written notice (a "Deficiency Notice") of all claims for Products that deviate from the Specifications, cGMPs, or Applicable Laws, within [**] days after Client’s receipt thereof (or, in the case of

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Master Manufacturing Services Agreement

any defects not reasonably susceptible to discovery upon receipt of the Product, within [**] days after discovery by Client, but not after [**] months following the expiration date of the Product, provided that any notification after the expiration date relates to an underlying event giving rise to a claim that occurred on or before the expiration date).  Should Client fail to give Patheon the Deficiency Notice within the applicable [**] day period, then the delivery will be deemed to have been accepted by Client on the [**] day after delivery or discovery, as applicable.  

(b)Determination of Deficiency.  Upon receipt of a Deficiency Notice, Patheon will have [**] days to advise Client by notice in writing that it disagrees with the contents of the Deficiency Notice.  If Client and Patheon fail to agree within [**] days after Patheon's notice to Client as to whether any Products identified in the Deficiency Notice deviate from the Specifications, cGMPs, or Applicable Laws, then the parties will mutually select an independent laboratory to evaluate if the Products deviate from the Specifications, cGMPs, or Applicable Laws.  This evaluation will be binding on the parties. If the evaluation certifies that any Products deviate from the Specifications, cGMPs, or Applicable Laws, Client may reject those Products in the manner contemplated in this Section 6.1 and Patheon will be responsible for the cost of the evaluation.  If the evaluation does not so certify for any of the Products, then Client will be deemed to have accepted delivery of the Products and Client will be responsible for the cost of the evaluation.

(c)Shortages. Claims for shortages in the amount of Products shipped by Patheon will be dealt with by reasonable agreement of the parties.

(d)Product Rejection for Finished Product Specification Failure. Internal process specifications will be defined and agreed upon.  If Patheon manufactures Product in accordance with the agreed upon process specifications, the batch production record, and Patheon’s standard operating procedures for manufacturing, and a batch or portion of batch of Product does not meet a finished Product specification, Client will pay Patheon the applicable fee per unit for the non-conforming Product. The API in the non-conforming Product will be included in the “Quantity Converted” for purposes of calculating the “Actual Annual Yield” under Section 2.2(a).

6.2

Product Recalls and Returns.

(a)Records and Notice.  Client shall be solely responsible for determining that a Recall of any Product is appropriate. Patheon and Client will each maintain records necessary to permit a Recall of any Products delivered to Client or customers of Client.  Patheon will promptly notify Client by telephone (to be confirmed in writing) of any information which might affect the marketability, safety, quality or effectiveness of the Products or which might result in the Recall or seizure of the Products.  Client will promptly notify Patheon by telephone (to be confirmed in writing) of any information Client receives which Client reasonably believes may result in the Recall or seizure of the Products. Upon receiving this notice from Client, Patheon will stop making any further shipments of any Products in its possession or control until a decision has been made whether a Recall or some other corrective action is necessary.  The decision to initiate a Recall or to take some other corrective action, if any, will be made and implemented by Client.  "Recall" will mean any action (i) by Client to recover title to or possession of quantities of the Products sold or shipped to Third Parties (including, without limitation, the voluntary withdrawal of Products from the market); or (ii) by any regulatory authorities to detain or destroy any of the Products.  Recall will also include any action by either party to refrain from selling or shipping quantities of the Products to Third Parties which would be subject to a Recall if sold or shipped.

(b)Recalls.  If (i) any Regulatory Authority issues a directive, order or, following the issuance of a safety warning or alert about a Product, a written request that any Product be Recalled, (ii) a court of competent jurisdiction orders a Recall, or (iii) Client determines that any Product should be Recalled or that a "Dear Doctor" letter is required relating to restrictions on the use of any Product, Patheon will co-operate as reasonably required by Client, having regard to all applicable laws and regulations.

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Master Manufacturing Services Agreement

(c)Product Returns.  Client will have the responsibility for handling customer returns of the Products.  Patheon will give Client any assistance that Client may reasonably require to handle the returns.

6.3

Patheon’s Responsibility for Defective and Recalled Products.

(a)Defective Product.  If Client rejects Products under Section 6.1 and the deviation is determined to have arisen from Patheon’s failure to provide the Manufacturing Services in accordance with the Specifications, cGMPs, or Applicable Laws, Patheon will credit Client’s account for Patheon’s invoice price for the defective Products.  If Client previously paid for the defective Products, Patheon will promptly, at Client’s election, either: (i) refund the invoice price for the defective Products; (ii) offset the amount paid against other amounts due to Patheon hereunder; or (iii) replace the Products with conforming Products, (provided that Patheon is able to manufacture replacement Product at the same Manufacturing Site as that of the rejected Products), without Client being liable for payment therefor under Section 3.1, contingent upon the receipt from Client of all Active Materials and Client-Supplied Components required for the manufacture of the replacement Products.  For greater certainty, Patheon’s responsibility for any loss of Active Materials in defective Product will be captured and calculated in the Active Materials Yield under Section 2.2.

(b)Recalled Product.  If a Recall or return results from, or arises out of, a failure by Patheon to perform the Manufacturing Services in accordance with the Specifications, cGMPs, or Applicable Laws, Patheon will be responsible for the documented out-of-pocket expenses of the Recall or return and will replace the Recalled or returned Products with new Products, contingent upon the receipt from Client of all Active Materials and Client-Supplied Components required for the manufacture of the replacement Products.  For greater certainty, Patheon’s responsibility for any loss of Active Materials in Recalled Product will be captured and calculated in the Active Materials Yield under Section 2.2. If Patheon is unable to replace the Recalled or returned Products (except where this inability results from a failure to receive the required Active Materials and Client-Supplied Components), then Client may request Patheon to reimburse Client for the price that Client paid to Patheon for Manufacturing Services for the affected Products.  In all other circumstances, Recalls, returns, or other corrective actions will be made at Client's cost and expense.

(c)Except as set forth in Sections 6.3(a) and (b) above and Sections 6.4 and 6.5 below, Patheon will not be liable to Client nor have any responsibility to Client for any deficiencies in, or other liabilities associated with, any Product manufactured by it, (collectively, "Product Claims").  For greater certainty but not limitation, Patheon will have no obligation for any Product Claims to the extent the Product Claim solely (i) is caused by deficiencies in the Specifications, the safety, efficacy, or marketability of the Products or any distribution thereof, (ii) results from a defect in a Component that is not reasonably discoverable by Patheon using the test methods set forth in the Specifications and not otherwise due to Patheon’s failure to perform the Manufacturing Services in accordance with the Specifications, cGMPs, or Applicable Laws or wilful misconduct prior to use of the applicable Component in the performance of the Manufacturing Services, (iii) results from a defect in the Active Materials, Client-Supplied  Components or Components supplied by a Client designated additional source that is not reasonably discoverable by Patheon using the test methods set forth in the Specifications and not otherwise due to Patheon’s failure to perform the Manufacturing Services in accordance with the Specifications, cGMPs, or Applicable Laws or wilful misconduct, (iv) is caused by actions of Client or Third Parties occurring after the Product is shipped by Patheon under Section 5.4, (v) is due to packaging design or labelling defects or omissions for which Patheon has no responsibility, or (vi) is due to any other breach by Client of its obligations under this Agreement.  

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Master Manufacturing Services Agreement

6.4

Disposition of Defective or Recalled Products.

Client will not dispose of any damaged, defective, returned, or Recalled Products for which it intends to assert a claim against Patheon without Patheon’s prior written authorization to do so.  Alternatively, Patheon may instruct Client to return the Products to Patheon.  Patheon will bear the cost of disposition for any damaged, defective, returned or Recalled Products for which it bears responsibility under Section 6.3.  In all other circumstances, Client will bear the cost of disposition, including all applicable fees for Manufacturing Services, for any damaged, defective, returned, or Recalled Products.

6.5

Healthcare Provider or Patient Questions and Complaints.

Client will have the sole responsibility for responding to questions and complaints from its customers.  Questions or complaints received by Patheon from Client's customers, healthcare providers or patients will be promptly referred to Client.  Patheon will co-operate as reasonably required to allow Client to determine the cause of and resolve any questions and complaints.  This assistance will include follow-up investigations, including testing.  In addition, Patheon will give Client all agreed upon information that will enable Client to respond properly to questions or complaints about the Products as set forth in the Quality Agreement.  Unless it is determined that the cause of the complaint resulted from a failure by Patheon to perform the Manufacturing Services and supply Product in accordance with the Specifications, cGMPs, and Applicable Laws, all costs incurred under this Section 6.5 will be borne by Client.

6.6

Shortage of Supply; Supply Failure.

(a) Patheon shall notify Client immediately upon becoming aware of an event that would render Patheon unable to supply any quantity of the Product required to be supplied hereunder.  If the event is caused by a breach of this Agreement by Patheon, Patheon shall use commercially reasonable efforts to remedy such shortage, including allocating a pro-rata portion of any available materials or capacity based on the production of the Product for Client and Patheon’s other uses according to the relative quantities used by each during the immediately preceding [**] prior to such shortage without regard to price; provided, however, that Client shall receive treatment proportionately no less favorable than any of Patheon’s other supply arrangements with respect to allocation of such materials or capacity.

(b) If there is a Supply Deficiency, then, if requested by Client, Patheon shall promptly take one (1) or more of the following steps to remedy the Supply Deficiency, in the following order of preference whenever practicable (i.e., with highest preference given to the remedy in paragraph (i) and the lowest preference given to the remedy in paragraph (iv)): (i) increase the length of a manufacturing campaign at the Manufacturing Site in order to manufacture for Client additional batches that are manufactured in accordance with the Specifications, cGMPs and Applicable Laws to remedy the Supply Deficiency (each such Batch, a “Deficiency Cure Batch”); (ii) utilize any appropriately qualified capacity at the Manufacturing Site which is not then contractually committed to the performance of services for Third Party customers during the applicable quarter to manufacture for Client Deficiency Cure Batches; (iii) coordinate and cooperate with Client to re-schedule manufacture batches of Product ordered hereunder in order to maximize Patheon’s ability to manufacture for Client Deficiency Cure Batches while minimizing the disruption of manufacture at the Manufacturing Site then in force and any contractual commitments to Third Party customers; and (iv) use commercially reasonable efforts to remedy the Supply Deficiency in subsequent quarters, if any, by utilizing and dedicating excess capacity not contractually committed to Third Party customers to manufacture Deficiency Cure Batches and to reserve such capacity for Client’s requirements until the issues surrounding the Supply Deficiency have been remedied.  For purposes of this Section 6.6(b), “Supply Deficiency” shall mean the difference between the Product manufactured under Firm Order(s) accepted by Patheon that meet the requirements under this Agreement and the number specified in such Firm Order(s) in the event that Patheon has failed to manufacture the quantities specified in the relevant Firm Order(s) solely as a result of a breach of this Agreement by Patheon (but excluding any failure that relates to a Shortfall provided that Patheon complies with its obligations in Section 2.2(c)).

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Master Manufacturing Services Agreement

(c)If Patheon delivers less than [**] percent ([**]%) of the Product ordered by Client pursuant to a Firm Order within [**] days of the agreed-upon Delivery Date(s) in any Rolling Forecast in any [**] periods (calculated on the basis of the aggregate quantity of Product delivered during [**] periods) solely as a result of a breach of this Agreement by Patheon but excluding any failure that relates to a Shortfall provided that Patheon complies with its obligations in Section 2.2(c) (Supply Failure), then (x) obligations relating to the minimum purchase and binding portion of such forecast will cease to apply with respect to the current Rolling Forecast and any subsequent Rolling Forecast and (y) Client shall have the right to purchase all of its requirements of the Product from an alternative supplier, in each case until Patheon has satisfied the requirements of sub-section (i), below. For purposes of this definition, any Product that is non-conforming Product at the time of delivery as a result of a failure by Patheon to perform the Manufacturing Services in accordance with the Specifications, cGMPs, or Applicable Laws shall be considered not delivered.

(i) If, after a Supply Failure, Patheon delivers [**]% of the aggregate quantity of Product ordered by Client under Firm Orders within [**] days of the agreed-upon delivery date(s) during a consecutive [**] period as determined by the Firm Order date (the “Cure Period”), the minimum purchase and binding portion obligations will be re-instated, beginning with the first Rolling Forecast delivered by Client after the Cure Period.

(ii) Should Patheon fail to remedy any Supply Failure during the Cure Period, Client may in its sole discretion, transfer any and all volume of the Product previously reflected in the binding portion of its forecast to an alternate supplier.

(d)Section 6.6 shall not apply if the Supply Deficiency, Supply Failure or any other Product shortage is caused by a Force Majeure Event or is attributable in whole or in part to Client or its contractors or to a breach of this Agreement by Client.

6.7

Alternative Supplier.

(a) Subject to the provisions of Section 2.1, nothing in this Agreement shall preclude Client, at anytime during this Agreement, from qualifying an alternate supplier to provide manufacturing services for Product(s); provided, however, that Client otherwise complies all of its obligations under this Agreement.

(b) If Client exercises its option to transfer the manufacture of the Product to an alternate supplier in accordance with Section 6.6(c) Patheon shall reasonably assist Client for a reasonable period of time in such transfer, including providing all Product data and any non-Confidential Information regarding the manufacturing process provided that Client will reimburse Patheon for its fees and all documented costs and out-of-pocket expenses incurred in connection with such assistance (Patheon would provide a quotation for the services that Client requires pursuant to this Section 6.7 and on acceptance by Client of the same and signature by the parties, Patheon will provide the services stated therein).

6.8

Sole Remedy.

Except for the indemnity set forth in Section 10.3 and subject to the limitations set forth in Sections 10.1 and 10.2, the remedies described in this Article 6 will be Client’s sole remedy for any failure by Patheon to provide the Manufacturing Services in accordance with the Specifications, cGMPs, and Applicable Laws.

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Master Manufacturing Services Agreement

ARTICLE 7

CO-OPERATION

7.1

Quarterly Review.

Each party will forthwith upon execution of this Agreement appoint one of its employees to be a relationship manager responsible for liaison between the parties.  The relationship managers will meet not less than quarterly to review the current status of the business relationship and manage any issues that have arisen.

7.2

Governmental Agencies.

Subject to Section 7.8, each party may communicate with any governmental agency, including but not limited to governmental agencies responsible for granting Regulatory Approval for the Products, regarding the Products if, in the opinion of that party's counsel, the communication is necessary to comply with the requirements of any law, governmental order or regulation; provided that, to the extent reasonably practicable, Patheon shall provide Client prompt notice upon its determination and discuss with Client such proposed communication.  Unless, in the reasonable opinion of its counsel, there is a legal prohibition against doing so, Patheon will permit Client to accompany and take part in any communications with the agency, and to receive copies of all communications from the agency.

7.3

Records and Accounting by Patheon.

Patheon will keep records of the Manufacturing Services, including the manufacture, testing, and shipping of the Products, and retain samples of the Products as are necessary to comply with cGMP and other manufacturing regulatory requirements applicable to Patheon, as well as to assist with resolving Product complaints and other similar investigations.  Unless otherwise agreed to in the Quality Agreement, copies of the records and samples will be retained for one year following the date of Product expiry, or longer if required by law or regulation, following which time Client will be contacted in writing concerning the delivery and destruction of the documents and/or samples of Products.  Patheon reserves the right to destroy or return to Client, at Client’s sole expense, any document or samples for which the retention period has expired if Client fails to arrange for destruction or return within [**] days of receipt of written notice from Patheon.  Client is responsible for retaining samples of the Products necessary to comply with the legal/regulatory requirements applicable to Client.

7.4

Inspection.

Client may inspect Patheon reports and records relating to the Product(s) and this Agreement during normal business hours and with reasonable advance notice, but a Patheon representative must be present during the inspection.

7.5

Access.

Patheon will give Client reasonable access at agreed times to the areas of the Manufacturing Site in which the Products are manufactured, stored, handled, or shipped to permit Client to verify that the Manufacturing Services are being performed in accordance with this Agreement, the Specifications, cGMPs, and Applicable Laws.  But, with the exception of “for-cause” audits, Client or designee will be limited each Year to [**], each audit lasting no more than [**] days, and involving no more than [**].  Client may request additional cGMP-type audits, additional audit days, or the participation of additional auditors subject to payment to Patheon of a fee of $[**] / EUR [**] for each additional audit day and $[**] / EUR [**] per audit day for each additional auditor.  The right of access set forth in Sections 7.4 and 7.5 will not include a right to access or inspect Patheon’s financial records.  For each Product,

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Master Manufacturing Services Agreement

Patheon will support the first pre- Approval Inspection by the FDA (“PAI”) and all subsequent routine non-PAI FDA inspections or equivalent routine non-PAI regulatory inspection for other jurisdictions (where applicable) and provide a copy of the resulting report at no cost.  Additional PAIs or equivalent support will be subject to additional fees.  

7.6

Notification of Regulatory Inspections.

Patheon will notify Client within [**] of any inspections by any Authority or other governmental agency involving the Products.  Patheon will also notify Client of receipt of any form 483’s or warning letters or any other significant regulatory action which Patheon’s quality assurance group determines could impact the regulatory status of the Products and shall promptly provide Client with Patheon’s plan to correct any deficiencies identified by such Authority (which may be redacted to protect any confidential information of Patheon or any Third Party) and diligently pursue such corrections.

7.7

Reports.

Upon Client’s reasonable request, Patheon will supply all Product data in its control, including release test results, complaint test results, and all investigations (in manufacturing, testing, and storage), that Client reasonably requires in order to complete any filing under any applicable regulatory regime, including any Annual Report that Client is required to file with the FDA.  Any additional data or report requested by Client beyond the scope of cGMPs and customary FDA, EMA or Japanese PMDA requirements will be subject to an additional fee to be agreed upon between Patheon and the Client.

7.8

Regulatory Filings.

(a)Regulatory Authority.  Client will have the sole responsibility at Client’s expense for filing all documents with all Regulatory Authorities and taking any other actions that may be required for the receipt and/or maintenance of Regulatory Authority approval for the commercial manufacture, distribution and sale of the Products (“Regulatory Approval”).  Patheon will assist Client, to the extent consistent with Patheon’s obligations under this Agreement, to obtain Regulatory Authority approval for the commercial manufacture, distribution and sale of all Products as quickly as reasonably possible.

 

(b)Verification of Data.  Prior to filing any documents with any Regulatory Authority that incorporate data generated by Patheon, Client will give Patheon a copy of the documents incorporating this data to give Patheon the opportunity to verify the accuracy and regulatory validity of those documents as they relate to Patheon generated data. Patheon requires [**] days to perform this review but the parties may agree to a shorter time for the review as needed.

 

(c)Verification of CTD.  Prior to filing with any Regulatory Authority any documentation which is or is equivalent to the Quality Module (Drug Product Section) of the Common Technical Document (all such documentation herein referred to as “CTD”) related to any Marketing Authorization, such as a US New Drug Application, US Abbreviated New Drug Application, US Biologics Licence Application, or EU Marketing Authorisation Application, Client will give Patheon a copy of the CTD as well as all supporting documents which have been relied upon to prepare the CTD.  This disclosure will permit Patheon to verify that the CTD accurately describes the validation or scale-up work that Patheon has performed and the manufacturing processes that Patheon will perform under this Agreement.  Patheon requires [**] days to perform this review but the parties may agree to a shorter time for the review as needed. Client will give Patheon copies of all relevant filings which contain CTD information regarding the Product.

 

(d)Deficiencies.  If, in Patheon’s sole discretion, acting reasonably, Patheon determines that any of the information given by Client under clauses (b) and (c) above is inaccurate or deficient in any

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Master Manufacturing Services Agreement

manner whatsoever (the "Deficiencies"), Patheon will promptly (within [**] business days of discovery) notify Client in writing of the Deficiencies.  The parties will work together to have the Deficiencies resolved prior to the date of filing of the relevant application and in any event before any pre-approval inspection or before the Product is placed on the market if a pre-approval inspection is not performed.

 

(e)Client Responsibility.  For clarity, the parties agree that in reviewing the documents referred to in clause (b) above, Patheon’s role will be limited to verifying the accuracy of the description of the work undertaken or to be undertaken by Patheon.  Subject to the foregoing, Patheon will not assume any responsibility for the accuracy of any application for receipt of an approval by a Regulatory Authority.  The Client is solely responsible for the preparation and filing of the application for approval by the Regulatory Authority and any relevant costs will be borne by the Client.

 

(f)Inspection by Regulatory Authorities.  If Client does not give Patheon the documents requested under subsections (b) and (c) above within the time specified and if Patheon reasonably believes that Patheon’s standing with a Regulatory Authority may be jeopardized, Patheon (i) shall so notify Client in writing and (ii) may, in its sole discretion, upon written notice to Client, delay or postpone any inspection by the Regulatory Authority with respect to the Product that is the subject of such documents until Patheon has reviewed the requested documents and is satisfied with their contents.

 

(g)Pharmacovigilance.  Client will be responsible, at its expense, for all pharmacovigilance obligations for the Products pursuant to Applicable Laws; Patheon shall provide Client any safety information it receives related to the Product on a prompt basis.  Unless required by Applicable Law, Client will not be obliged to exchange with the other party any information or data which it compiles pursuant to pharmacovigilance obligations or activities.

 

(h)No Patheon Responsibility.  Patheon will not assume any responsibility for the accuracy or cost of any application for Regulatory Approval. If a Regulatory Authority, or other governmental body, requires Patheon to incur fees, costs or activities in relation to the Products which Patheon considers unexpected and extraordinary, then Patheon will notify Client in writing and the parties will discuss in good faith appropriate mutually acceptable actions, including fee/cost sharing, or termination of all or any part of this Agreement.  

ARTICLE 8

TERM AND TERMINATION

8.1

Initial Term.

This Agreement will become effective as of the Effective Date and will continue until December 31, 2022 (the "Initial Term"), unless terminated earlier by one of the parties in accordance herewith.  This Agreement will automatically renew after the Initial Term for successive terms of two Years each if there is a Product Agreement in effect, unless either party gives written notice to the other party of its intention to terminate this Agreement at least eighteen (18) months prior to the end of the then current term. In any event, the legal terms and conditions of this Agreement will continue to govern any Product Agreement in effect as provided in Section 1.2. Each Product Agreement will have an initial term of two (2) Years from the start of commercial manufacture at the Manufacturing Site for the Product unless the parties agree to a different number of Years in the applicable Product Agreement (each, an “Initial Product Term”). Product Agreements will automatically renew after the Initial Product Term for successive terms of two Years each unless either party gives written notice to the other party of its intention to terminate the Product Agreement at least eighteen (18) months prior to the end of the then current term.  

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Master Manufacturing Services Agreement

8.2

Termination for Cause.

(a)Either party at its sole option may terminate this Agreement or a Product Agreement upon written notice where the other party has failed to remedy a material breach of any of its representations, warranties, or other obligations under this Agreement or the Product Agreement within [**] days following receipt of a written notice (the "Remediation Period") of the breach from the aggrieved party that expressly states that it is a notice under this Section 8.2(a) (a "Breach Notice").  The aggrieved party's right to terminate this Agreement or a Product Agreement under this Section 8.2(a) may only be exercised for a period of [**] days following the expiry of the Remediation Period (where the breach has not been remedied). The termination of a Product Agreement under this Section 8.2(a) will not affect this Agreement or any other Product Agreements where there has been no material breach of the other Product Agreements.  

(b)Either party at its sole option may immediately terminate this Agreement or a Product Agreement upon written notice, but without prior advance notice, to the other party if: (i) the other party is declared insolvent or bankrupt by a court of competent jurisdiction; (ii) a voluntary petition of bankruptcy is filed in any court of competent jurisdiction by the other party; or (iii) this Agreement or a Product Agreement is assigned by the other party for the benefit of creditors.

(c)Client may terminate a Product Agreement upon thirty (30) days' prior written notice if any Authority takes any action, or raises any objection, that prevents Client from importing, exporting, purchasing, or selling the Product.  But if this occurs, Client must still fulfill all of its obligations under Section 8.4 below and under any Capital Equipment Agreement regarding the Product.

(d)Patheon may terminate this Agreement or a Product Agreement upon six months' prior written notice if Client assigns under Section 13.6 any of its rights under this Agreement or a Product Agreement to an assignee that, in the opinion of Patheon acting reasonably, is a Patheon Competitor or is not a creditworthy substitute for Client.

8.3

Product Discontinuation.

Client will use reasonable efforts to give Patheon at least [**] advance written notice if it intends to no longer order Manufacturing Services for a Product due to the Product's discontinuance in the market.

8.4

Obligations on Termination.

 

(a)

If a Product Agreement is completed, expires, or is terminated in whole or in part for any reason, then:

 

(i)

Subject to Article 6, Client will take delivery of and pay for all undelivered Products that are manufactured and/or packaged under a Firm Order in accordance with this Agreement, at the Price in effect at the time the Firm Order was placed;

 

(ii)

Client will purchase, at Patheon's cost (including all costs incurred by Patheon for the purchase and handling of the Inventory), the Inventory applicable to the Products which was purchased, produced or maintained by Patheon as reasonably necessary to fill Firm Orders or in accordance with Section 5.2;

 

(iii)

Client will satisfy the purchase price payable under Patheon's orders with suppliers of Components, if the orders were made by Patheon in reliance on Firm Orders or in accordance with Section 5.2;

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Master Manufacturing Services Agreement

 

(iv)

Client acknowledges that no Patheon Competitor will be permitted access to the Manufacturing Site; and

 

(v)

Client will make commercially reasonable efforts, at its own expense, to remove from Patheon site(s), within [**] days, all unused Active Material and Client-Supplied Components, all applicable Inventory and Materials (whether current or obsolete), supplies, undelivered Product, chattels, equipment or other moveable property owned by Client, related to the Agreement and located at a Patheon site or that is otherwise under Patheon’s care and control (“Client Property”).  If Client fails to remove the Client Property within [**] days following the completion, termination, or expiration of the Product Agreement, Client will pay Patheon $[**] / EUR [**] per pallet, per month, one pallet minimum (except that Client will pay $[**] / EUR [**] per pallet, per month, one pallet minimum, for any of the Client Property that contains controlled substances, requires refrigeration or other special storage requirements) thereafter for storing the Client Property and will assume any third party storage charges invoiced to Patheon regarding the Client Property.  Patheon will invoice Client for the storage charges as set forth in Section 5.5 of this Agreement.

 

(b)

Upon Client’s request Patheon shall reasonably assist Client for a reasonable period of time in the transfer of the manufacture to a Third Party, including providing all Product data and any non-Confidential Information regarding the manufacturing process provided that Client will reimburse Patheon for its fees and all documented costs and out-of-pocket expenses incurred in connection with such assistance (Patheon would provide a quotation for the services that Client requires pursuant to this Section 8.4(b) and on acceptance by Client of the same and signature by the parties, Patheon will provide the services stated therein.  

 

(c)

Any completion, termination or expiration of this Agreement or a Product Agreement will not affect any accrued rights or outstanding obligations or payments due prior to the completion, termination or expiration, nor will it prejudice any other remedies that the parties may have under this Agreement or a Product Agreement or any related Capital Equipment Agreement.  For greater certainty, completion, termination or expiration of this Agreement or of a Product Agreement for any reason will not affect the obligations and responsibilities of the parties under Articles 10 and 11 and Sections 5.4, 5.5, 8.4, 13.1, 13.2, 13.3, 13.16 and 13.17, all of which survive any completion, termination or expiration.

ARTICLE 9

REPRESENTATIONS, WARRANTIES AND COVENANTS

9.1

Authority.

Each party covenants, represents, and warrants that it has the full right and authority to enter into this Agreement and that it is not aware of any impediment that would inhibit its ability to perform its obligations hereunder.

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Master Manufacturing Services Agreement

9.2

Client Warranties.

Client covenants, represents, and warrants that:

 

(a)

Non-Infringement.

 

(i)

the Specifications for each of the Products are its or its Affiliate's property and that Client may lawfully disclose the Specifications to Patheon;

 

(ii)

any Client Intellectual Property, used by Patheon in performing the Manufacturing Services according to the Specifications (A) is Client’s or its Affiliate's property or Client or its Affiliate otherwise has a right to use such Client Intellectual Property, and (B) to the knowledge of Client, does not infringe any Third Party Rights;

 

(iii)

the performance of the Manufacturing Services by Patheon for any Product under this Agreement or any Product Agreement or the use or other disposition of any Product by Patheon as may be required to perform its obligations under this Agreement or under any Product Agreement does not knowingly infringe any Third Party Rights;

 

(iv)

there are no actions or other legal proceedings involving the Client that concerns the infringement of Third Party Rights related to any of the Specifications, or any of the Active Materials and the Components, or the sale, use, or other disposition of any Product made in accordance with the Specifications;

 

(b)

Quality and Compliance.

 

(i)

the Specifications for all Products conform to all applicable cGMPs and Applicable Laws;

 

(ii)

the Products, after approval, and if labelled and manufactured in accordance with the Specifications and in compliance with applicable cGMPs and Applicable Laws may be lawfully sold and distributed in every jurisdiction in which Client markets the Products;

 

(iii)

on the date of shipment, the API will conform to the specifications for the API that Client has given to Patheon and that the API will be adequately contained, packaged, and labelled and will conform to the affirmations of fact on the container.

9.3

Patheon Warranties.

Patheon covenants, represents, and warrants that:

 

(a)

it will perform the Manufacturing Services in accordance with this Agreement, the Specifications, Master Batch Record, cGMPs, and Applicable Laws;

 

(b)

all Product Patheon delivers to Client pursuant to this Agreement shall be transferred to Client free and clear of any liens or encumbrances of any kind provided that Client pays all invoices in accordance with Section 5.5;

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Master Manufacturing Services Agreement

 

(c)

all Product Patheon delivers to Client pursuant to this Agreement shall, at the time of delivery, not be adulterated or misbranded as a result of a failure by Patheon to perform the Manufacturing Services in accordance with this Agreement, the Specifications, cGMPs and Applicable Laws within the meaning of adulterated or misbranded as set out in the United States Federal Food, Drug, and Cosmetic Act or within the meaning of all Applicable Law in which the definitions of adulteration and misbranding are substantially the same as those contained in United States Federal Food, Drug, and Cosmetic Act, as such act and such laws are constituted and effective at the time of delivery, and will not be an article which may not under the provisions of Sections 404 and 505 of the United States Federal Food, Drug, and Cosmetic Act be introduced into interstate commerce as a result of a failure by Patheon to perform the Manufacturing Services in accordance with this Agreement, the Specifications, cGMPs and Applicable Laws;

 

(d)

it has obtained and will remain in compliance with during the term of this Agreement, all permits, licenses and other authorizations which are required under federal, state and local laws, rules and regulations applicable to the Manufacturing Services at the Manufacturing Site;

 

(e)

any Patheon Intellectual Property used by Patheon to perform the Manufacturing Services (i) is Patheon’s or its Affiliate's property or Patheon or its Affiliate otherwise has a right to use such Patheon Intellectual Property, and (ii) to the knowledge of Patheon does not infringe any Third Party Rights.  In its performance of its obligations under this Agreement, Patheon will not knowingly incorporate into the manufacturing process any Third Party Rights for which it does not have a license that permits it to do so and/or to be able to grant to Client the licenses and other rights otherwise required to be granted to Client hereunder;

 

(f)

Patheon’s performance of its obligations under this Agreement will not result in a material violation or breach of any agreement, contract, commitment or obligation to which Patheon is a party or by which it is bound and will not conflict with or constitute a default under its corporate charter or bylaws;

 

(g)

it will not in the performance of its obligations under this Agreement use the services of any person it knows is debarred or suspended under 21 U.S.C. §335(a) or (b); and

 

(h)

it does not currently have, and it will not hire, as an officer or an employee any person whom it knows has been convicted of a felony under the laws of the United States for conduct relating to the regulation of any drug product under the United States Federal Food, Drug, and Cosmetic Act.

9.4

Permits.

 

(a)

Client will be solely responsible for obtaining or maintaining, on a timely basis, any permits or other regulatory approvals for the Products or the Specifications, including, without limitation, all marketing and post-marketing approvals.

 

(b)

Patheon will be solely responsible for and will maintain at all relevant times all governmental permits, licenses, approval, and authorities required to enable it to lawfully and properly perform the Manufacturing Services and operate the Manufacturing Site.

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Master Manufacturing Services Agreement

9.5

No Warranty.

NEITHER PARTY MAKES ANY WARRANTY OR CONDITION OF ANY KIND, EITHER EXPRESSED OR IMPLIED, BY FACT OR LAW, OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT. NEITHER PARTY MAKES ANY WARRANTY OR CONDITION OF FITNESS FOR A PARTICULAR PURPOSE NOR ANY WARRANTY OR CONDITION OF MERCHANTABILITY FOR THE PRODUCTS.

ARTICLE 10

REMEDIES AND INDEMNITIES

10.1

Consequential and Other Damages.

Except with respect to a breach of the confidentiality and non-use obligations of Article 11, under no circumstances whatsoever will either party be liable to the other in contract, tort, negligence, breach of statutory duty, or otherwise for (i) any (direct or indirect) loss of profits, of production, of anticipated savings, of business, or goodwill or (ii) any reliance damages, including but not limited to costs or expenditures incurred to evaluate the viability of entering into this Agreement or to prepare for performance under this Agreement, or (iii) for any other liability, damage, costs, or expense of any kind incurred by the other party of an indirect or consequential nature, including regardless of any notice of the possibility of these damages.

10.2

Limitation of Liability.

(a)Active Materials. Except as expressly set forth in Section 2.2, under no circumstances will Patheon be responsible for any loss or damage to the Active Materials.  Patheon’s maximum responsibility for loss or damage to the Active Materials will not exceed the Maximum Credit Value set forth in Schedule D of a Product Agreement.

(b)Defective or Recalled Product. Patheon’s maximum aggregate liability to Client for any obligation to (i) refund, offset or replace any defective Product under Section 6.3(a) or (ii) replace any recalled Products under Section 6.3(b), will not exceed [**]% of the Price for the defective or recalled Product as applicable.  This Section 10.2(b) will not be subject to Section 10.2(c).

(c)Maximum Liability. Except as stated in Section 10.2(b), Patheon’s maximum aggregate liability to Client in any Year under this Agreement or any Product Agreement for any reason whatsoever, including, without limitation, any liability arising under Section 6.3(b) relating to the expenses of a Recall or Product return, Section 2.2 or Section 10.3 hereof or resulting from any and all breaches of its representations, warranties, or any other obligations under this Agreement or any Product Agreement (but excluding Patheon’s obligations described in Section 10.2(b)) will not exceed on a per Product basis [**]% of the revenue paid by Client to Patheon (and its Affiliates) per Year under the applicable Product Agreement during the Year in which the underlying event occurred that gave rise to the liability (e.g. the date of the incident or manufacture).

(d)Death, Personal Injury and Fraudulent Misrepresentation.  Nothing contained in this Agreement shall act to exclude or limit either party’s liability for personal injury or death caused by the negligence of either party or fraudulent misrepresentation.

10.3

Patheon Indemnity.

Patheon agrees to defend, indemnify and hold harmless Client, its Affiliates and each of their officers, employees, and agents (“Client Indemnitees”) against all losses, damages, costs, claims,

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Master Manufacturing Services Agreement

demands, judgments and liability to, from and in favour of Third Parties resulting from or arising out of: (i) any claim of personal injury or property damage to the extent that the injury or damage is the result of the negligence or wilful misconduct of any Patheon Indemnitee; or (ii) any claim of personal injury or property damage to the extent that the injury or damage is the result of a breach of this Agreement by Patheon, including a failure by Patheon to perform the Manufacturing Services in accordance with the Specifications, cGMPs, and Applicable Laws , except to the extent that the losses, damages, costs, claims, demands, judgments, and liability are due to the negligence or wrongful act(s) of any Client Indemnitee.

10.4

Client Indemnity.

Client agrees to defend, indemnify and hold harmless Patheon, its Affiliates and each of their officers, employees, and agents (“Patheon Indemnitees”) against all losses, damages, costs, claims, demands, judgments and liability to, from and in favour of Third Parties  resulting from, or relating to (i) any claim of infringement or alleged infringement of any Third Party Rights arising from the manufacture, storage, promotion, labeling, marketing, distribution, use or sale of Product, or (ii) any claim of personal injury or property damage to the extent that the injury or damage arises other than from a breach of the relevant agreement by Patheon, including, without limitation, any representation or warranty contained herein, except to the extent that the losses, damages, costs, claims, demands, judgments, and liability are due to the negligence or wrongful act(s) of any Patheon Indemnitee.

10.5

Indemnification Procedure.

A party that makes a claim for indemnification under this Article 10 shall promptly notify the other party (the “Indemnitor”) in writing of any action, claim or other matter in respect of which such party, intends to claim such indemnification; provided, however, that failure to provide such notice within a reasonable period of time shall not relieve the Indemnitor of any of its obligations hereunder except to the extent the Indemnitor is prejudiced by such failure.  The indemnified party shall permit the Indemnitor, at its discretion, to settle any such action, claim or other matter, and the indemnified party agrees to the complete control of such defense or settlement by the Indemnitor.  Notwithstanding the foregoing, the Indemnitor shall not enter into any settlement that would adversely affect the indemnified party’s rights hereunder, or impose any obligations on the indemnified party in addition to those set forth herein, in order for it to exercise such rights, without the indemnified party’s prior written consent, which shall not be unreasonably withheld or delayed. No such action, claim or other matter shall be settled without the prior written consent of the Indemnitor, which shall not be unreasonably withheld or delayed.  The indemnified party shall fully cooperate with the Indemnitor and its legal representatives in the investigation and defense of any action, claim or other matter covered by the indemnification obligations of this Article 10. The indemnified party shall have the right, but not the obligation, to be represented in such defense by counsel of its own selection and at its own expense.

10.6

Reasonable Allocation of Risk.

This Agreement (including, without limitation, this Article 10) is reasonable and creates a reasonable allocation of risk for the relative profits the parties each expect to derive from the Products. Patheon assumes only a limited degree of risk arising from the manufacture, distribution, and use of the Products because Client has developed and holds the marketing approval for the Products, Client requires Patheon to manufacture and label the Products strictly in accordance with the Specifications, and Client, not Patheon, is best positioned to inform and advise potential users about the circumstances and manner of use of the Products.  

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Master Manufacturing Services Agreement

ARTICLE 11

CONFIDENTIALITY

11.1

Confidential Information.

“Confidential Information” means any non-public information disclosed by the Disclosing Party to the Recipient (whether disclosed in oral, written, electronic or visual form) that is confidential or proprietary including, without limitation, information relating to the Disclosing Party’s patent and trademark applications, process designs, process models, drawings, plans, designs, data, databases and extracts therefrom, formulae, methods, know-how and other intellectual property, its clients or client confidential information, finances, marketing, products and processes and all price quotations, manufacturing or professional services proposals, information relating to composition, proprietary technology, and all other information relating to manufacturing capabilities and operations.  In addition, all analyses, compilations, studies, reports or other documents prepared by any party's Representatives containing the Confidential Information will be considered Confidential Information. Samples or materials provided hereunder as well as any and all information derived from the approved analysis of the samples or materials will also constitute Confidential Information. The terms of this Agreement shall be deemed the Confidential Information of both parties. For the purposes of this ARTICLE 11, a party or its Representative receiving Confidential Information under this Agreement is a “Recipient,” and a party or its Representative disclosing Confidential Information under this Agreement is the “Disclosing Party.”

11.2

Use of Confidential Information.

The Recipient will use the Confidential Information of the Disclosing Party solely for the purpose of meeting its obligations under this Agreement or exercising its rights under this Agreement.  The Recipient will keep the Confidential Information of the Disclosing Party confidential and will not disclose such Confidential Information to any Third Party in any manner whatsoever, in whole or in part, other than to those of its Representatives who (i) have a need to know the Confidential Information for the purpose of this Agreement; (ii) have been advised of the confidential nature of the Confidential Information and (iii) have obligations of confidentiality and non-use to the Recipient no less restrictive than those of this Agreement.  Recipient will protect the Confidential Information of the Disclosing Party disclosed to it hereunder by using reasonable precautions to prevent the unauthorized disclosure, dissemination or use of such Confidential Information, which precautions will in no event be less than those exercised by Recipient with respect to its own confidential or proprietary information of a similar nature.

11.3

Exclusions.

The obligations of confidentiality and non-use will not apply to the extent that the Recipient can establish that the information:  

(a)is or becomes publicly known through no breach of this Agreement or fault of the Recipient or its Representatives;

(b)is in the Recipient's possession at the time of disclosure by the Disclosing Party other than as a result of the Recipient's breach of any legal obligation;

(c)is or becomes known to the Recipient on a non-confidential basis through disclosure by sources, other than the Disclosing Party, having the legal right to disclose the Confidential Information, provided that the other source is not known by the Recipient to be bound by any obligations (contractual, legal, fiduciary, or otherwise) of confidentiality to the Disclosing Party with respect to the Confidential Information;

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Master Manufacturing Services Agreement

(d)is independently developed by the Recipient without use of or reference to the Disclosing Party's Confidential Information as evidenced by Recipient’s contemporaneous written records; or

(e)is expressly authorized for release by the written authorization of the Disclosing Party.

Any combination of information which comprises part of the Confidential Information is not exempt from the obligations of confidentiality merely because individual parts of that Confidential Information were publicly known, in the Recipient’s possession, or received by the Recipient, unless the combination itself was publicly known, in the Recipient’s possession, or received by the Recipient.

11.4

Photographs and Recordings.

Neither party will take any photographs or videos of the other party’s facilities, equipment or processes, nor use any other audio or visual recording equipment (such as camera phones) while at the other party’s facilities, without that party’s express written consent; provided, however, that Client may photograph or video the Product at any Patheon facility provided that any photograph or video is treated as Confidential Information of Patheon.

11.5

Permitted Disclosure; Publicity.

(a)Notwithstanding any other provision of this Agreement, the Recipient may disclose Confidential Information of the Disclosing Party to the extent required, as advised by counsel, in response to a valid order of a court or other governmental body or as required by law, regulation or stock exchange rule; provided that (i) the Recipient will advise the Disclosing Party in advance of the disclosure to the extent practicable and permissible by the order, law, regulation or stock exchange rule and any other applicable law, (ii) will reasonably cooperate with the Disclosing Party, at the Disclosing Party’s expense, if required, in seeking an appropriate protective order or other remedy, and (iii) will otherwise continue to perform its obligations of confidentiality set out herein.  If any public disclosure is required by law, the parties will consult concerning the form of announcement prior to the public disclosure being made.

(b)All publicity, press releases and other announcements relating to this Agreement shall be reviewed in advance by, and subject to the approval of, both parties (which approval shall not be unreasonably withheld); provided, however, that either party may, to the extent required (i) disclose the terms of this Agreement (with appropriate redactions as described below) insofar as required to comply with applicable securities laws, provided that in the case of such disclosures the Party proposing to make such disclosure notifies the other Party reasonably in advance of such disclosure and cooperates to minimize the scope and content of such disclosure, and (ii) disclose the terms of this Agreement to such party’s professional advisors or existing or potential licensees, investors, acquirers, or merger candidates who are bound by obligations of confidentiality and non-use consistent with those set forth herein.  The failure of a Party to respond in writing to a publication proposal from the other party within [**] working days of such party’s receipt of such publication shall be deemed as such party’s approval of such publication as received by such party.  Each party agrees that it shall cooperate fully and in a timely manner with the other with respect to any disclosures to the Securities and Exchange Commission and any other governmental or regulatory agencies, including requests for confidential treatment of Confidential Information of either party included in any such disclosure.  For each such disclosure, (a) the filing party will provide the other party at least [**] business days to review a draft redacted version of this Agreement, and (b) both Parties shall work together in good faith to agree on the disclosure to be made, having due and proper regard to their legal obligations; provided that the filing party shall ultimately retain control over what information to disclose to any securities authority or stock exchange. Each filing party shall use reasonable efforts to seek confidential treatment for terms proposed to be redacted.

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Master Manufacturing Services Agreement

11.6

Marking.

The Disclosing Party agrees to use reasonable efforts to summarize in writing the content of any oral disclosure or other non-tangible disclosure of its Confidential Information within [**] days of the disclosure, but failure to provide this summary will not affect the nature of the Confidential Information disclosed if the Confidential Information was identified as confidential or proprietary when disclosed orally or in any other non-tangible form.

11.7

Return of Confidential Information.

Upon the written request of the Disclosing Party, the Recipient will promptly return the Confidential Information to the Disclosing Party or, if the Disclosing Party directs, destroy all Confidential Information disclosed in or reduced to tangible form including any copies thereof and any summaries, compilations, analyses or other notes derived from the Confidential Information except for one copy which may be maintained by the Recipient for its records.  The retained copy will remain subject to all confidentiality provisions contained in this Agreement.

11.8

Remedies.

The parties acknowledge that monetary damages may not be sufficient to remedy a breach by either party of this Agreement and agree that the non-breaching party will be entitled to seek specific performance, injunctive and/or other equitable relief to prevent breaches of this Agreement and to specifically enforce the provisions hereof in addition to any other remedies available at law or in equity. These remedies will not be the exclusive remedies for breach of this Agreement but will be in addition to any and all other remedies available at law or in equity.

11.9

Confidentiality Term.  

All obligations of confidentiality and non-use imposed upon the parties under this Agreement shall expire [**] years after the expiration or earlier termination of this Agreement; provided, however, that Confidential Information which constitutes the trade secrets of a party (and is labelled as a trade secret or is otherwise identified in writing as being a trade secret at the time of disclosure or within [**] days thereafter) shall be kept confidential indefinitely, subject to the limitations set forth in Sections 11.3 and 11.5.

ARTICLE 12

DISPUTE RESOLUTION

12.1

Commercial Disputes.

(a)If any dispute arises out of this Agreement or any Product Agreement (other than a dispute under Section 6.1(b) or a Technical Dispute, as defined herein), the parties will first try to resolve it amicably.  In that regard, any party may send a notice of dispute to the other, and each party will appoint, within [**] Business Days from receipt of the notice of dispute, a single representative having full power and authority to resolve the dispute.  The representatives will meet as necessary in order to resolve the dispute.  If the representatives fail to resolve the matter within [**] from their appointment, or if a party fails to appoint a representative within the [**] Business Day period set forth above, the dispute will immediately be referred to the Chief Operating Officer (or another officer as he/she may designate) of each party who will meet and discuss as necessary to try to resolve the dispute amicably within [**] days of referral of the matter to the Chief Operating Officer or his/her designee.  Should the parties fail to reach a resolution under this Section 12.1(a), the dispute will be referred to a court of competent jurisdiction in accordance with Section 13.17.

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Master Manufacturing Services Agreement

12.2

Technical Dispute Resolution.

If a dispute arises (other than disputes under Sections 6.1(b) or 12.1) between the parties that is exclusively related to technical aspects of the manufacturing, packaging, labelling, quality control testing, handling, storage, or other activities under this Agreement (a "Technical Dispute"), the parties will make reasonable efforts to resolve the dispute by amicable negotiations.  In that regard, senior representatives of each party will, as soon as possible and in any event no later than [**] Business Days after a written request from either party to the other, meet in good faith to resolve any Technical Dispute.  If, despite this meeting, the parties are unable to resolve a Technical Dispute within a reasonable time, and in any event within [**] Business Days of the written request, the Technical Dispute will, at the request of either party, be referred for determination to an expert in accordance with Exhibit A.  If the parties cannot agree that a dispute is a Technical Dispute, Section 12.1 will prevail.  For greater certainty, the parties agree that the release of the Products for sale or distribution under the applicable marketing approval for the Products will not by itself indicate compliance by Patheon with its obligations for the Manufacturing Services and further that nothing in this Agreement (including Exhibit A) will remove or limit the authority of the relevant qualified person (as specified by the Quality Agreement) to determine whether the Products are to be released for sale or distribution.

ARTICLE 13

MISCELLANEOUS

13.1

Inventions.

(a)For the term of this Agreement, Client hereby grants to Patheon a non-exclusive, paid-up, royalty-free, non-transferable license of Client’s Intellectual Property which Patheon must use in order to perform the Manufacturing Services for Client in accordance with this Agreement.

(b)All Client Intellectual Property will be the exclusive property of Client.  Patheon hereby assigns, and to the extent it cannot presently assign, will assign, to Client all of Patheon’s and its Affiliates’ worldwide right, title and interest, if any, in Client Intellectual Property.  Patheon shall provide reasonable assistance to Client in securing for Client any patents, copyrights or other proprietary rights in such Client Intellectual Property, and shall take such reasonable actions and execute such documents as Client may reasonably request in connection with providing such assistance or otherwise to vest in Client all right, title and interest in such Inventions, including without limitation any and all applications, assignments or other instruments each of the foregoing at the cost of Client.

(c)All Patheon Intellectual Property will be the exclusive property of Patheon. Patheon hereby grants to Client a perpetual, irrevocable, non-exclusive, paid-up, royalty-free, transferable license to use the Patheon Intellectual Property used by Patheon to perform the Manufacturing Services to enable Client to manufacture the Product(s).

(d)Each party will be solely responsible for the costs of filing, prosecution, and maintenance of patents and patent applications on its own Inventions.

(e)Patheon will give the Client written notice, as promptly as practicable, of all Inventions which can reasonably be deemed to constitute improvements or other modifications of the Products or processes or technology owned or otherwise controlled by Client  .   

13.2

Intellectual Property.

Neither party has, nor will it acquire, any interest in any of the other party’s Intellectual Property unless otherwise expressly agreed to in writing.  Neither party will use any Intellectual Property of the other party, except as specifically authorized by the other party or as required for the performance of its obligations under this Agreement.

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Master Manufacturing Services Agreement

13.3

Insurance.

Each party will maintain commercial general liability insurance, including blanket contractual liability insurance covering the obligations of that party under this Agreement through the term of this Agreement and for a period of [**] thereafter.  This insurance will have policy limits of not less than (i) EUR [**] for each occurrence for personal injury or property damage liability; and (ii) EUR [**] in the aggregate per annum for product and completed operations liability.  If requested, each party will give the other a certificate of insurance evidencing the above and showing the name of the issuing company, the policy number, the effective date, the expiration date, and the limits of liability. If a party is unable to maintain the insurance policies required under this Agreement through no fault of its own, then the party will forthwith notify the other party in writing and the parties will in good faith negotiate appropriate amendments to the insurance provision of this Agreement in order to provide adequate assurances.

13.4

Independent Contractors.

The parties are independent contractors and this Agreement and any Product Agreement will not be construed to create between Patheon and Client any other relationship such as, by way of example only, that of employer-employee, principal agent, joint-venturer, co-partners, or any similar relationship, the existence of which is expressly denied by the parties.

13.5

No Waiver.

Either party's failure to require the other party to comply with any provision of this Agreement or any Product Agreement will not be deemed a waiver of the provision or any other provision of this Agreement or any Product Agreement.

13.6

Assignment.

 

(a)

Patheon may not assign this Agreement or any Product Agreement or any of its associated rights or obligations without the written consent of Client. Further it is specifically agreed that Patheon may subcontract any part of the Manufacturing Services under a Product Agreement to any of its Affiliates; provided that such Affiliate is identified in the applicable Product Agreement.  Patheon will remain solely liable to Client for its obligations under this Agreement, and for the obligations of the applicable Affiliate of Patheon under the Quality Agreement, if the Manufacturing Services are subcontracted.

 

(b)

Subject to Section 8.2(d), Client may assign this Agreement or any Product Agreement or any of its associated rights or obligations without approval from Patheon. But Client will give Patheon prior written notice of any assignment, any assignee will covenant in writing with Patheon to be bound by the terms of this Agreement or the Product Agreement.  Client may not perform any partial assignment of this Agreement or any Product Agreement or any of its associated rights or obligations to more than [**] assignees without the consent of Patheon (with assignment to the first [**] assignees not requiring the consent of Patheon).

 

(c)

Despite the foregoing provisions of this Section 13.6, either party may assign this Agreement or any Product Agreement to any of its Affiliates or to a successor to or purchaser of all or substantially all of its business; provided that the assignee agrees to be bound by the terms of this Agreement, the Quality and the Product Agreement, as applicable.

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Master Manufacturing Services Agreement

13.7

Force Majeure.

Neither party will be liable for the failure to perform its obligations under this Agreement or any Product Agreement if the failure is caused by an event beyond that party's reasonable control, including, but not limited to, strikes or other labor disturbances, lockouts, riots, quarantines, communicable disease outbreaks, wars, acts of terrorism, fires, floods, storms, interruption of or delay in transportation, defective equipment, lack of or inability to obtain fuel, power or components, or compliance with any order or regulation of any government entity acting within colour of right (a "Force Majeure Event").  A party claiming a right to excused performance under this Section 13.7 will immediately notify the other party in writing of the extent of its inability to perform, which notice will specify the event beyond its reasonable control that prevents the performance.  Neither party will be entitled to rely on a Force Majeure Event to relieve it from an obligation to pay money (including any interest for delayed payment) which would otherwise be due and payable under this Agreement or any Product Agreement.  If Patheon becomes subject to a Force Majeure Event which interferes with production of the Product at the Manufacturing Site for more than 30 days, the parties shall mutually agree on implementation of an agreed-upon action plan to transfer production of the Product to another Patheon plant or location at Client’s cost. The parties shall, after the execution of this Agreement and at the request of either party, meet to discuss and define such an action plan.

13.8

Additional Product.

Additional Products may be added to, or existing Products deleted from, any Product Agreement by amendments to the Product Agreement including Schedules A, B, C, and D as applicable.

13.9

Notices.

Unless otherwise agreed in a Product Agreement, any notice, approval, instruction or other written communication required or permitted hereunder will be sufficient if made or given to the other party by personal delivery, by telecopy, facsimile communication, or confirmed receipt email or by sending the same by first class mail, postage prepaid to the respective addresses, telecopy or facsimile numbers or electronic mail addresses set forth below:

If to Client:

Tetraphase Pharmaceuticals, Inc.

480 Arsenal Way

Watertown

Massachusetts 02472

USA

 

Attention: General Counsel

Facsimile No.: [**]

Email address: [**]

If to Patheon:

Patheon UK Limited

Kingfisher Drive

Covingham

Swindon Wiltshire SN3 5BZ

England

 

Attention: Legal Director

Email address: [**]

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Master Manufacturing Services Agreement

 

or to any other addresses, telecopy or facsimile numbers or electronic mail addresses given to the other party in accordance with the terms of this Section 13.9.  Notices or written communications made or given by personal delivery, telecopy, facsimile, or electronic mail will be deemed to have been sufficiently made or given when sent (receipt acknowledged), or if mailed, five days after being deposited in the United States, Canada, or European Union mail, postage prepaid or upon receipt, whichever is sooner.

13.10

Severability.

If any provision of this Agreement or any Product Agreement is determined by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, that determination will not impair or affect the validity, legality, or enforceability of the remaining provisions, because each provision is separate, severable, and distinct.  With respect to any such invalid, illegal, or unenforceable provision, the parties shall consult and use their best efforts to agree upon a valid and enforceable provision which shall be a reasonable substitute for such invalid, illegal, or unenforceable provision in light of the intent of this Agreement.  

13.11

Entire Agreement.

This Agreement, together with the applicable Product Agreement and the Quality Agreement, constitutes the full, complete, final and integrated agreement between the parties relating to the subject matter hereof and supersedes all previous written or oral negotiations, commitments, agreements, transactions, or understandings concerning the subject matter hereof.  Any modification, amendment, or supplement to this Agreement or any Product Agreement must be in writing and signed by authorized representatives of both parties.  In case of conflict, the prevailing order of documents will be this Agreement, the Product Agreement, and the Quality Agreement.  

13.12

Other Terms.

No terms, provisions or conditions of any purchase order or other business form or written authorization used by Client or Patheon will have any effect on the rights, duties, or obligations of the parties under or otherwise modify this Agreement or any Product Agreement, regardless of any failure of Client or Patheon to object to the terms, provisions, or conditions unless the document specifically refers to this Agreement or the applicable Product Agreement and is signed by both parties.

13.13

No Third Party Benefit or Right.

For greater certainty, nothing in this Agreement or any Product Agreement will confer or be construed as conferring on any Third Party any benefit or the right to enforce any express or implied term of this Agreement or any Product Agreement.

13.14

Execution in Counterparts.

This Agreement and any Product Agreement may be executed in two or more counterparts, by original, facsimile or “pdf” signature, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

13.15

Use of Client Name.

Patheon will not make any use of Client’s name, trademarks or logo or any variations thereof, alone or with any other word or words, without the prior written consent of Client. 

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Master Manufacturing Services Agreement

13.16

Taxes.

(a)The Client will bear all taxes, duties, levies and similar charges (and any related interest and penalties) ("Tax" or "Taxes"), however designated, imposed as a result of the provision by the Patheon of Services under this Agreement, except:

 

(i)

any Tax based on net income or gross income that is imposed on Patheon by its jurisdiction of formation or incorporation ("Resident Jurisdiction");

 

(ii)

any Tax based on net income or gross income that is imposed on Patheon by jurisdictions other than its Resident Jurisdiction; and

 

(iii)

any Tax that is recoverable by Patheon in the ordinary course of business for purchases made by Patheon in the course of providing its Services, such as Value Added Tax (as more fully defined in subparagraph (d) below), Goods & Services Tax ("GST") and similar taxes.

(b)If the Client is required to bear a tax, duty, levy or similar charge under this Agreement by any state, federal, provincial or foreign government, including, but not limited to, Value Added Tax, the Client will pay the tax, duty, levy or similar charge and any additional amounts to the appropriate taxing authority as are necessary to ensure that the net amounts received by Patheon hereunder after all such payments or withholdings equal the amounts to which Patheon is otherwise entitled under this Agreement as if the tax, duty, levy or similar charge did not exist.  The parties will cooperate reasonably in completing and filing documents required under the provisions of any applicable tax laws or under any other applicable law, in connection with the making of any required tax payment or withholding payment, or in connection with any claim to a refund of or credit for any such payment. The parties will cooperate to minimize such taxes in accordance with applicable laws.

(c)Patheon will not collect an otherwise applicable tax if the Client's purchase is exempt from Patheon's collection of the tax and a valid tax exemption certificate is furnished by the Client to Patheon.

(d)If Section 13.16 (a)(iii) does not apply, any payment due under this Agreement for the provision of Services to the Client by Patheon is exclusive of value added taxes, turnover taxes, sales taxes or similar taxes, including any related interest and penalties (hereinafter all referred to as "VAT"). If any VAT is payable on a Service supplied by Patheon to the Client under this Agreement, this VAT will be added to the invoice amount and will be for the account of (and reimbursable to Patheon by) the Client. If VAT on the supplies of Patheon is payable by the Client under a reverse charge procedure (i.e., shifting of liability, accounting or payment requirement to recipient of supplies), the Client will ensure that Patheon will not effectively be held liable for this VAT by the relevant taxing authorities or other parties. Where applicable, Patheon will ensure that its invoices to the Client are issued in such a way that these invoices meet the requirements for deduction of input VAT by the Client, if the Client is permitted by law to do so.

(e)Any Tax that Client pays, or is required to pay, but which Client believes should properly be paid by Patheon pursuant hereto may not be offset against sums due by Client to Patheon whether due pursuant to this Agreement or otherwise.

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Master Manufacturing Services Agreement

13.17

Governing Law.

This Agreement and any Product Agreement, unless otherwise agreed by the parties in the Product Agreement and then only for the purposes of that Product Agreement, will be construed and enforced in accordance with the laws of the State of Delaware and subject to the exclusive jurisdiction of the courts thereof. The parties expressly waive their respective rights to a jury trial in respect of any matter relating to this Agreement or its formation. The UN Convention on Contracts for the International Sale of Goods will not apply to this Agreement.

[Signature page to follow]

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Master Manufacturing Services Agreement

IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this Agreement as of the Effective Date.

 

 

PATHEON UK LIMITED

 

 

 

 

By:

/s/ Nick Plummer

 

Name:

Nick Plummer

 

Title:

Director & Company Secretary

 

 

 

 

TETRAPHASE PHARMACEUTICALS, INC.

 

 

 

 

By:

/s/ Guy Macdonald

 

Name:

Guy Macdonald

 

Title:

CEO

 

 

 

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Exhibit 10.9

Master Manufacturing Services Agreement

APPENDIX 1

FORM OF PRODUCT AGREEMENT

(Includes Schedules A to D)

PRODUCT AGREEMENT

This Product Agreement (this “Product Agreement”) is issued under the Master Manufacturing Services Agreement dated 9 June 2017 between Patheon UK Limited and Tetraphase Pharmaceuticals, Inc. (the “Master Agreement”), and is entered into [insert effective date] (the “Effective Date”), between Patheon UK Limited [or applicable Patheon Affiliate], a corporation existing under the laws of England [or applicable founding jurisdiction for Patheon Affiliate], having a principal place of business at Kingfisher Drive, Covingham, Swindon, Wiltshire SN3 5BZ, England [or Patheon Affiliate address] (“Patheon”) and [insert Client name, legal entity, founding jurisdiction and address] (“Client”).

The terms and conditions of the Master Agreement are incorporated herein except to the extent this Product Agreement expressly references the specific provision in the Master Agreement to be modified by this Product Agreement.  All capitalized terms that are used but not defined in this Product Agreement will have the respective meanings given to them in the Master Agreement.

The Schedules to this Product Agreement are incorporated into and will be construed in accordance with the terms of this Product Agreement.

 

1.

Product List and Specifications (See Schedule A attached hereto)

 

2.

Minimum Order Quantity, Annual Volume, and Price (See Schedule B attached hereto)

 

3.

Annual Stability Testing and Validation Activities (if applicable) (See Schedule C attached hereto)

 

4.

Active Materials, Active Materials Credit Value and Maximum Credit Value (See Schedule D attached hereto)

 

5.

Yearly Forecasted Volume:

6.Territory: (insert the description of the Territory here)

 

7.

Manufacturing Site:

Subcontractor: Patheon Italia SpA.  Address: 2 Trav. SX, Via Morolense 5, 03013, Ferentino, Italy

Subcontractor:  Patheon Manufacturing Services LLC.  Address: 5900 Martin Luther King Jr. Highway, Greenville, NC 27834, USA

 

8.

Inflation Index: pursuant to Section 4.2(a) of the Master Agreement, the inflation index is:

Italy: the Consumer Price Index, published by ISTAT.  This index is set forth at the following web address: [details to be included]

 


Master Manufacturing Services Agreement

North America: Producer Price Index pcu325412325412 for Pharmaceutical Preparation Manufacturing (“PPI”) published by the United States Department of Labor, Bureau of Labor Statistics

 

9.

Currency: (if applicable under Section 1.4 of the Master Agreement)

 

10.

Initial Set Exchange Rate (if applicable – if Currency included above)

 

11.

Initial Product Term: (if applicable under Section 8.1 of the Master Agreement)

 

12.

Notices: (if applicable under Section 13.9 of the Master Agreement)

 

13.

Other Modifications to the Master Agreement: (if applicable under Section 1.2 of the Master Agreement)

Sole Manufacturer

Patheon shall be the sole manufacturer for at least [**]% of the volumes of the Product set out in the forecast in Schedule [  ].  With respect to those countries in the Territory that are member states of the EEA (“EEA Countries”), [**] years after the Effective Date, Client’s commitment in the preceding sentence will be reduced automatically to a commitment to purchase no more than [**]% of its requirements of Products for distribution and sale in those EEA Countries. The parties may, however, agree to extend the period of exclusivity for the EEA Countries for an additional period by mutual written consent.  

Adjustments Due to Currency Fluctuations.  [delete this section if pricing will be in Euros]

If the parties agree in this Product Agreement [Item 10 of Product Agreement] to invoice in a currency other than the local currency for the Manufacturing Site, Patheon will adjust the Price to reflect currency fluctuations.  The adjustment will be calculated after all other annual Price adjustments under this Section [   ] have been made.  The adjustment will proportionately reflect the increase or decrease, if any, in the Set Exchange Rate compared to the Set Exchange Rate established for the prior Year or the Initial Set Exchange Rate, as the case may be.  

Initial Set Exchange Rate” means as of the Effective Date of a Product Agreement, the initial exchange rate set forth in the Product Agreement to convert one unit of the billing currency into the Patheon Manufacturing Site local currency, calculated as the daily average interbank exchange rate for conversion of one unit of the billing currency into the Patheon Manufacturing Site local currency during the 90 day period immediately preceding the Effective Date as published by OANDA.com “The Currency Site” under the heading “FxHistory: historical currency exchange rates”  at www.OANDA.com/convert/fxhistory;

“Set Exchange Rate” means the exchange rate to convert one unit of the billing currency into the Patheon Manufacturing Site local currency for each Year, calculated as the average daily interbank exchange rate for conversion of one unit of the billing currency into the Patheon Manufacturing Site local currency during the full year period (October 1st [preceding year] to September 30th) as published by OANDA.com “The Currency Site” under the heading “FxHistory: historical currency exchange rates” at www.OANDA.com/convert/fxhistory;

________________________________________

 

- 2 -


Master Manufacturing Services Agreement

IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this Product Agreement as of the Effective Date set forth above.

 

 

PATHEON UK LIMITED [or applicable Patheon Affiliate]

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

TETRAPHASE PHARMACEUTICALS, INC.

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

- 3 -


Exhibit 10.9

Master Manufacturing Services Agreement

SCHEDULE A

PRODUCT LIST AND SPECIFICATIONS

Product List

eravacycline for injection

Specifications

Prior to the start of commercial manufacturing of Product under this Agreement Client will give Patheon the originally executed copies of the Specifications as approved by the applicable Regulatory Authority.  If the Specifications received are subsequently amended, then Client will give Patheon the revised and originally executed copies of the revised Specifications.  Upon acceptance of the revised Specifications, Patheon will give Client a signed and dated receipt indicating Patheon’s acceptance of the revised Specifications.

 

 

 


Exhibit 10.9

Master Manufacturing Services Agreement

SCHEDULE B

MINIMUM ORDER QUANTITY, ANNUAL VOLUME, AND PRICE

 

[Insert Price Table]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Manufacturing Assumptions:

Packaging Assumptions:

Testing Assumptions:

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. A total of two pages were omitted. [**]

 


Exhibit 10.9

Master Manufacturing Services Agreement

SCHEDULE C

ANNUAL STABILITY TESTING [and VALIDATION ACTIVITIES (if applicable)]

Patheon and Client will agree in writing on any stability testing to be performed by Patheon on the Products.  This agreement will specify the commercial and Product stability protocols applicable to the stability testing and the fees payable by Client for this testing.

 

 

 


Exhibit 10.9

Master Manufacturing Services Agreement

SCHEDULE D

ACTIVE MATERIALS

 

Active Materials

Supplier

 

ACTIVE MATERIALS CREDIT VALUE

The Active Materials Credit Value will be as follows:

PRODUCT

ACTIVE MATERIALS

ACTIVE MATERIALS

CREDIT  VALUE

 

 

Client’s actual cost for Active Materials not to exceed $ / EUR_____per kilogram

 

 

 

 

MAXIMUM CREDIT VALUE

Patheon's liability for Active Materials calculated in accordance with Section 2.2 of the Master Agreement [for any Product] in a Year will not exceed, in the aggregate, the maximum credit value set forth below:

PRODUCT

MAXIMUM CREDIT VALUE

 

[**]% of revenues (being payments of the Price) per Year received by Patheon under this Product Agreement,

 

 

 

[End of Product Agreement]

 


Exhibit 10.9

Master Manufacturing Services Agreement

EXHIBIT A

TECHNICAL DISPUTE RESOLUTION

Technical Disputes which cannot be resolved by negotiation as provided in Section 12.2 will be resolved in the following manner:

1.Appointment of Expert. Within [**] Business Days after a party requests under Section 12.2 that an expert be appointed to resolve a Technical Dispute, the parties will jointly appoint a mutually acceptable independent expert with experience and expertise in the subject matter of the dispute.  If the parties are unable to so agree within the [**] Business Day period, or if there is a disclosure of a conflict by an expert under Paragraph 2 hereof which results in the parties not confirming the appointment of the expert, then an expert (willing to act in that capacity hereunder) will be appointed by an experienced arbitrator on the roster of the American Arbitration Association.

2.Conflicts of Interest.  Any person appointed as an expert will be entitled to act and continue to act as an expert even if at the time of his appointment or at any time before he gives his determination, he has or may have some interest or duty which conflicts or may conflict with his appointment if before accepting the appointment (or as soon as practicable after he becomes aware of the conflict or potential conflict) he fully discloses the interest or duty and the parties will, after the disclosure, have confirmed his appointment.

3.Not Arbitrator.  No expert will be deemed to be an arbitrator and the provisions of the American Arbitration Act or of any other applicable statute (foreign or domestic) and the law relating to arbitration will not apply to the expert or the expert's determination or the procedure by which the expert reaches his determination under this Exhibit A.

4.Procedure.  Where an expert is appointed:

 

(a)

Timing.  The expert will be so appointed on condition that (i) he promptly fixes a reasonable time and place for receiving representations, submissions or information from the parties and that he issues the authorizations to the parties and any relevant third party for the proper conduct of his determination and any hearing and (ii) he renders his decision (with full reasons) within [**] Business Days (or another other date as the parties and the expert may agree) after receipt of all information requested by him under Paragraph 4(b) hereof.

 

(b)

Disclosure of Evidence.  The parties undertake one to the other to give to any expert all the evidence and information within their respective possession or control as the expert may reasonably consider necessary for determining the matter before him which they will disclose promptly and in any event within [**] Business Days of a written request from the relevant expert to do so.

 

(c)

Advisors.  Each party may appoint any counsel, consultants and advisors as it feels appropriate to assist the expert in his determination and so as to present their respective cases so that at all times the parties will co-operate and seek to narrow and limit the issues to be determined.

 

 


Master Manufacturing Services Agreement

 

(d)

Appointment of New Expert.  If within the time specified in Paragraph 4(a) above the expert will not have rendered a decision in accordance with his appointment, a new expert may (at the request of either party) be appointed and the appointment of the existing expert will thereupon cease for the purposes of determining the matter at issue between the parties except if the existing expert renders his decision with full reasons prior to the appointment of the new expert, then this decision will have effect and the proposed appointment of the new expert will be withdrawn.

 

(e)

Final and Binding.  The determination of the expert will, except for fraud or manifest error, be final and binding upon the parties.

 

(f)

Costs.  Each party will bear its own costs for any matter referred to an expert hereunder and, in the absence of express provision in the Agreement to the contrary, the costs and expenses of the expert will be shared equally by the parties.

For greater certainty, the release of the Products for sale or distribution under the applicable marketing approval for the Products will not by itself indicate compliance by Patheon with its obligations for the Manufacturing Services and further that nothing in this Agreement (including this Exhibit A) will remove or limit the authority of the relevant qualified person (as specified by the Quality Agreement) to determine whether the Products are to be released for sale or distribution.

 

- 2 -


Exhibit 10.9

Master Manufacturing Services Agreement

EXHIBIT B

COMMERCIAL QUALITY AGREEMENT

Quality Agreement

Commercial Product

 

Between

 

TETRAPHASE PHARMACEUTICALS, INC.

a corporation existing under the laws of Delaware, USA

 

(“Client”)

 

-and-

 

PATHEON ITALIA S.p.A.

a corporation existing under the laws of Italy

 

Ferentino Operations (FRT)

2° Trav. SX Via Morolense 5, 03013 Ferentino, Italy

 

(“Patheon”)

 

Effective Date: <ENTER EFFECTIVE DATE HERE>


 

 


Master Manufacturing Services Agreement

TABLE OF CONTENTS

SECTION 1

BACKGROUND AND AGREEMENT

3

SECTION 2

RESPONSIBILITIES TABLE

4

SECTION 3

GENERAL

6

SECTION 4

DESCRIPTION OF RESPONSIBILITIES

7

SECTION 5

APPENDICES

20

 

APPENDIX A: PRODUCT(S)

 

 

APPENDIX B:  QUALITY CONTACTS

 

 

APPENDIX C:  PATHEON APPROVED VENDOR LIST

 

 

APPENDIX D:  CLIENT APPROVED VENDOR LIST

 

 

APPENDIX E:  PATHEON APPROVED CONTRACT LABORATORIES AND MANUFACTURERS LIST

 

 

APPENDIX F:  API STARTING MATERIAL EU REQUIREMENTS

 

 


- 2 -


Master Manufacturing Services Agreement

Section 1:  BACKGROUND and Agreement

BACKGROUND.  Under a manufacturing services agreement dated <ENTER MSA DATE HERE> between Patheon UK Limited (the “Contract Acceptor”) and the Client (the "MSA"), the Contract Acceptor agreed to sub-contract the performance of pharmaceutical manufacturing services for certain marketed products in certain countries (as set forth in Appendix A hereto) (“Products”) to Patheon.  The parties agreed that the Contract Acceptor will remain solely liable to the Client for any breach of the duties and responsibilities assumed by Patheon under this Agreement.  The Client is required to give the Contract Acceptor certain Specifications in order for Patheon to perform the manufacturing services.  Under the MSA, the Contract Acceptor is required to ensure that Patheon operates within the Specifications and in accordance with cGMP.  The Client and Patheon, as provider of the manufacturing services on behalf of the Contract Acceptor for the benefit of the Client, desire to allocate the responsibility for procedures and Specifications impacting on the identity, strength, quality and purity of the Products by entering into this Quality Agreement (this “Agreement”).

AGREEMENT.  NOW THEREFORE in consideration of the rights conferred and the obligations assumed under the MSA and herein, and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), and intending to be legally bound, the parties agree as follows:


- 3 -


Master Manufacturing Services Agreement

Section 2: Responsibilities Table

 

Patheon will be responsible for all the operations that are marked with "X" in the column titled "Patheon" and the Client will be responsible for all the operations that are marked with "X" in the column titled "Client". If marked with "(X)", cooperation is required from the designated party. If more than one Patheon site is involved the “X” representing Patheon will be replaced with the three letter acronym(s) on the title page applicable to each site.

 

Section No.

Subject / Terms

Client

Patheon

4.1 Quality Management

4.1.1

cGMP, Health and Safety Compliance

X

X (or PPP)

4.1.2

Client Audit Rights

X

 

4.1.3

Subcontracting

(X)

X

4.1.4

Self-Inspection

 

X

4.2 Regulatory Requirements

4.2.1

Permits

X

 

4.2.2

Regulatory Filing / Registration Change Control

X

(X)

4.2.3

Regulatory Compliance

 

X

4.2.4

Government Agency Inspections, Communications and Requisitions

(X)

X

4.3 Incoming Material Control

4.3.1

Test Methods and Specifications

X

 

4.3.2

Material Destruction

(X)

X

4.3.3

Vendor Audit Responsibility

X

X

4.3.4

Client Furnished Materials

X

 

4.3.5

Temperature Monitoring Devices for In-Coming Materials

X

 

4.3.6

Incoming Material Release

 

X

4.3.7

Packaging Component Qualification

X

 

4.4 Building, Facilities, Utilities and Equipment

4.4.1

General

 

X

4.4.2

Equipment, Calibration and Preventative Maintenance

 

X

4.4.3

Environmental Monitoring Program

 

X

4.5 Product Controls

4.5.1

Technical Transfer

X

 

4.5.2

Master Batch Record

(X)

X

4.5.3

Reprocessing and Rework

(X)

X

4.5.4

Personnel Training

 

X

4.6 Packaging, Labeling and Printed Materials

4.6.1

Master Batch Packaging Records

(X)

X

4.6.2

Printed Material and Artwork

X

 

4.6.3

Test Methods and Method Validation

X

(X)

4.7 Deviation Reports (DRs)

4.7.1

Deviations

 

X

4.7.2

Notification of Deviations

 

X

4.7.3

Client Support

X

 

4.8 Release of Product

4.8.1

Test Methods and Specifications

X

 

4.8.2

Batch Release for Shipment

 

X

4.8.3

Certificate of Manufacture

 

X

- 4 -


Master Manufacturing Services Agreement

Section No.

Subject / Terms

Client

Patheon

4.8.4

Certificate of Analysis

 

X

4.8.5

Product Release

X

 

4.9 Validation

4.9.1

Master Validation Plan

(X)

X

4.9.2

Cleaning Validation Program

(X)

X

4.9.3

Analytical Method and Procedure Validation

X

(X)

4.9.4

Process Validation

X

(X)

4.10 Change Control

4.10.1

General

X

X

4.11 Documentation

4.11.1

Record Retention

 

X

4.11.2

Batch Document Requisition

 

X

4.11.3

Record Destruction

(X)

X

4.12 Laboratory Controls

4.12.1

Specifications and Test Methods

X

X

4.12.2

Out of Specifications (OOS) / Out of Trend (OOT)

 

X

4.13 Stability

4.13.1

Sample Storage

 

X

4.13.2

Stability Studies

X

X

4.13.3

Stability Failures

 

X

4.13.4

API and Product Retest and Expiry Date

X

 

4.14 Annual Product Review

4.14.1

Annual Report

X

(X)

4.14.2

Product Quality Report

(X)

X

4.15 Storage and Distribution

 

 

4.15.1

General

 

X

4.15.2

Product Storage and Shipment Changes

(X)

X

4.15.3

Product Quarantine

 

X

4.16 Product Complaints

4.16.1

Complaint Investigation

X

(X)

4.16.2

Complaint Sample Retrieval

X

 

4.17 Product Recall

4.17.1

Product Recall Notification

X

 

4.17.2

Government Agency Notification

X

 

4.18 Reference and Retention Samples

4.18.1

Excipient, Primary and Printed Packaging Materials, and Active Ingredient Reference Sample

 

X

4.18.2

Finished Product Retention Sample

X

X

4.18.3

Sample Destruction

(X)

X

 


- 5 -


Master Manufacturing Services Agreement

Section 3:  General

3.1

Capitalized terms not otherwise defined herein will have the meaning specified in the MSA.

3.2

Any communications about the subject matter of this Agreement will be directed, in the first instance, to the person(s) identified in Appendix B.

3.3

If any provision of this Agreement should be found invalid, or unenforceable by law, the rest of the Agreement will remain valid and binding and the parties will negotiate a valid provision which meets as closely as possible the objective of the invalid provision.  

3.4

Any amendment of this Agreement will be made in writing and signed by both parties.  

In particular, in the event of a substantial change to cGMPs or regional governances directly impacting Product Quality compliance, it shall be mutually agreed upon prior to implementation.

3.5

If there is any conflict between the terms of this Agreement and the MSA, the MSA will take precedence except for any specific quality-related issue.  Notwithstanding anything to the contrary in this Agreement, the MSA will take precedence with respect to any commercial terms, including fees for quality-related services.

3.6

The “Background” provisions of Section 1 are incorporated into this Agreement.


- 6 -


Master Manufacturing Services Agreement

Section 4: Description of Responsibilities

4.1

Quality Management

4.1.1

cGMP, Health and Safety Compliance

Patheon will conduct operations in compliance with applicable environmental, occupational health and safety laws, and cGMP regulations.  

4.1.2

Client Audit Rights

Patheon will permit audits by the Client on reasonable prior written notice, of all relevant premises, procedures and documentation related to Client’s Product.  Client audits are limited to [**] with a maximum of [**] auditors for [**] per calendar year unless for cause. Client representatives for audits must be preapproved by Patheon.

4.1.3

Subcontracting

Unless otherwise allowed herein, Patheon will not subcontract tasks to a third party without Client’s consent.  Patheon may subcontract tasks to the Patheon approved contract manufacturers and laboratories set forth in Appendix E hereto.

 

4.1.4

Self-Inspection

Patheon will perform self-inspections of its premises, facilities, and processes used to manufacture, package, test, and store the Client’s starting, intermediate, and/or finished products in accordance with Patheon’s written standard operating procedures (“SOPs”) to ensure compliance with cGMP.

4.2

Regulatory Requirements

4.2.1

Permits

The Client will be solely responsible for obtaining or maintaining, on a timely basis, any permits or other regulatory approvals for the Products or the Specifications, including, without limitation, all marketing and post-marketing approvals and reporting.

 

Patheon will obtain and maintain the appropriate manufacturing license(s) to allow for the Manufacturing services.

4.2.2

Regulatory Filing / Registration Change Control

The Client will ensure product filing and registrations are in compliance with all Applicable Laws.

 

The Client will determine whether changes to the Product or related to the Product will impact a regulatory filing and will apply for and receive approval for any required manufacturing amendment, change or addition to their Product marketing authorization. Upon request, Patheon will provide assistance in the preparation and review of pertinent sections of new or supplemental regulatory applications before filing.  

 

For EU products it is the responsibility of the Client to provide Patheon sites with the accurate Product registration information as per European legislations (cGMPs guide part I - chapters 1,4,6,7 and annex 16 / directives 2001/83/EC – title IV, articles 46, 48, 51 and 2003/94/EC article 5).

 

Prior to submission of any new, or change to any existing applicable CMC, CTD, Regulatory File, Product Registration, etc., to any Regulatory Authority relating to the Product, the Client will provide Patheon copies of sections of the submissions that are relevant to the services provided.  

 

Specifically, Client will provide Patheon with a copy of any documentation which is or is equivalent to the Quality Module (Drug Product Section) of the Common Technical Document and any

- 7 -


Master Manufacturing Services Agreement

amendments thereto (all such documentation herein referred to as “CTD”) related to any Marketing Authorization, such as a US New Drug Application, US Abbreviated New Drug Application, US Biologics Licence Application, or EU Marketing Authorisation Application at least [**] days prior to filing such information with the Regulatory Authority.  

 

The parties agree that no inspections by any Regulatory Authority may be scheduled until Patheon has had an opportunity to review the requested documents and is satisfied with their accuracy.

 

Patheon will communicate directly with the Regulatory Agency after discussions with Client.

 

The Client is responsible for all communications with Regulatory Authorities as well as for the approval, maintenance, and updating of marketing approval in a timely manner.

4.2.3

Regulatory Compliance

Patheon will ensure that Product(s) are manufactured and tested in strict compliance with;

 

current Canadian regulatory requirements (as defined under Part C, Division 2 of the Food and Drug Regulations),

 

US Federal regulatory and statutory requirements relating to Good Manufacturing Practices (cGMP) (US 21 CFR parts 210, 211, 600, 601, 610, etc…)

 

EU Directive 2003/94/EC for the Manufacture of Finished Medicinal Products)

 

EU Directives 2004/27/EC and 2011/62/EU, as applicable to the Holder of the Manufacturing Authorization.

as applicable, as well as all regulatory approvals and Applicable Laws at the site(s) of manufacture and/or testing.

 

The Client shall comply with EU Directives 2004/27/EC and 2011/62/EU as applicable to the holder of the relevant marketing authorisation or to the extent that such Directives apply to the supply of API.

4.2.4

Government Agency Inspections, Communication and Requisitions

Each party will permit all relevant inspections by Regulatory Authorities of premises, procedures, and documentation.

 

The parties will notify each other within [**] Business Days of receipt of any notice of inspection from a Regulatory Authority and within [**] of any regulatory authority request for Product samples, batch documentation, or similar information related to the Product.

 

Each party reserves the right to be present on site during a regulatory inspection that relates to the Product.

 

The parties will notify within [**] of receipt of any Form 483's warning letter or similar communication from any Regulatory Authority that relates to the Product; or if the supply of Product will be affected, or if the facilities used to produce, test or package the Product will be affected.

 

During a regulatory inspection relating to the Product, upon request, a party will provide the requesting party with the applicable Product data for which it is responsible under this Agreement.

 

Patheon is responsible for responding to all regulatory audits conducted at any Patheon site.  Patheon will provide Client with a draft of any responses directly related to the Product prior to submission to the Regulatory Authority.  Client must provide approval or request changes in a

- 8 -


Master Manufacturing Services Agreement

timely manner to enable Patheon to respond to the Regulatory Authority by the applicable deadline.  Notwithstanding, Patheon reserves the right to respond to the Regulatory Authority without Client’s prior approval, if, in the opinion of Patheon’s Legal counsel, it is required or reasonable to do so.

 

Client is responsible for responding to all regulatory audits at any Client site.  Client will provide Patheon with a draft of any response directly related to Patheon services prior to submission to the Regulatory Authority.  Patheon must provide approval or request changes in a timely manner to enable Client to respond to the Regulatory Authority by the applicable deadline.  Notwithstanding, Client reserves the right to respond to the Regulatory Authority without Patheon’s prior approval, if, in the reasonable opinion of Client’s Legal counsel, it is required or reasonable to do so.

4.3

Incoming Material Control

4.3.1

Test Methods and Specifications

The Client will give Patheon a copy of the Specifications and test methods used if the Client issues raw material Specifications.

4.3.2

Material Destruction

Patheon has the right to either return to the Client or dispose of any outdated or rejected material.  If the material is disposed of, disposal will be consistent with the nature of the material and sent to a permitted waste disposal facility.  Prior to disposal:

 

(i.)

Patheon will send notice to the Client about Patheon’s intent to dispose of the material.  If no direction is received from the Client, Patheon will dispose of the material no sooner than [**] days after the date of the notice.  

 

(ii.)

The materials will be disposed and destroyed in compliance with local environmental regulations and performed in a secure and legal manner that prevents unauthorized use or diversion.

 

Patheon will maintain destruction records in accordance with Patheon SOPs.  

4.3.3

Vendor Audit Responsibility

(For the purposes of this Section the term “Vendor” refers to the sites performing the manufacturing and testing of a material).

 

Excipient, Packaging Component, and API Vendors:

 

(i.)

If the Client stipulates a Vendor, the Client will audit and approve the Vendor and ensure cGMP compliance in accordance with Section 4.3.4 of this Agreement.  If Patheon is to release an API or other Client stipulated material based on “ID Only”, the Client will ensure the required verification testing by an independent laboratory has been completed.  The Client stipulated Vendor(s) will be included on the Client’s approved Vendor list (attached hereto as Appendix D).  

 

 

(ii.)

If Patheon stipulates a Vendor, Patheon will audit and approve the manufacturers and ensure cGMP compliance in accordance with Patheon’s SOP.  The Patheon stipulated Vendor(s) will be included on Patheon’s approved Vendor list (attached hereto as Appendix C).

 

 

(iii.)

Upon request by any regulatory body audits of API manufacturing sites should be available to both parties.

4.3.4

Client Furnished Materials

The Client is responsible for Vendor qualification of Client furnished materials and for providing a certificate of compliance confirming the following as applicable:

- 9 -


Master Manufacturing Services Agreement

 

 

(i)

That the materials are compliant with the provisions outlined in the “Note for Guidance on minimizing the risk of transmitting spongiform encephalopathy agents via human and veterinary medicinal products” (EMA/410/01, most current revision or equivalent requirement).

 

 

(ii)

Certification there is no potential for specific toxic solvents listed in the EP / USP / ICH residual solvents Class I, Class II or Class III to be present and the material, if tested, will comply with established EP / USP / ICH requirements.  If any of the solvents listed in the EP / USP / ICH residual solvents Class I, Class II or Class III are used in the manufacture or are generated in the manufacturing process, solvents of concern will be indicated.

 

 

(iii)

A cGMP compliance declaration for the API, assuring compliance with the latest regulatory requirements (e.g. EU directive 2004/27/EC for an API sourced from inside the EU or, ICH Q7 for an API sourced from outside the EU,  for API see Appendix F); and

 

 

(iv)

Any other certification applicable to the furnished material (e. g. Residues of Metals Catalysts & Reagents, Genotoxic Impurities, Kosher, Melamine, Viral Inactivation, etc...).

4.3.5

Temperature Monitoring Devices for In-Coming Materials

The Client is responsible for ensuring that the furnished API and all other furnished temperature sensitive materials are shipped to Patheon with the following conditions to ensure no temperature excursions occurred during transportation of the materials:

 

 

(i)

Ambient or Room Temperature APIs must be transported in a manner that reflects the label requirements.  Temperature stability data for the API to support label requirements will be provided to Patheon. If temperature stability data is not available, temperature monitoring devices will need to accompany each API shipment until this data is made available.  

 

 

(ii)

APIs and other materials that require special storage conditions (e.g. 2-8°C, (-15)-(-25°C), “Do Not Freeze”, etc.) must be transported in a manner which reflects the label requirements of the material.  Temperature stability data for the API to support label requirements will be provided to Patheon.  As such, temperature monitoring devices will accompany each shipment of these materials unless validated shipping processes are followed.

4.3.6

In-Coming Material Release

Patheon will use established systems and procedures for the receipt of materials to ensure all incoming materials are checked against receiving documentation and purchase orders, and are properly labeled and identified.  Prior to use in the manufacture of any Product, material(s) will be inspected, tested and released by Patheon against the Specification approved by the Client.

4.3.7

Packaging Component Qualification

In all cases the Client is responsible for qualifying any packaging container closure system for use in Product, for example USP<660>, <661>, <670>, <671>, Poison Prevention Act (Child Resistance), etc., unless other provisions are agreed to.

 

4.4

Building, Facilities, Utilities and Equipment

4.4.1

General

All buildings and facilities used in the manufacturing, packaging, testing and storage of any materials and/or Product will be of suitable size, construction and location to facilitate cleaning, and will be maintained in a good state of repair.  Maintenance and cleaning records will be kept in accordance with Patheon’s SOPs.

- 10 -


Master Manufacturing Services Agreement

4.4.2

Equipment, Calibration and Preventative Maintenance

All equipment used in the manufacturing, packaging, testing and storage of any materials and/or Product will be suitable for its intended use and appropriately located to allow for cleaning and maintenance.  Calibration and maintenance records will be kept according to Patheon SOPs for all critical equipment. Patheon will calibrate instrumentation and qualify computer systems used in the manufacture and testing of the Product in accordance with Patheon’s SOPs.

4.4.3

Environmental Monitoring Program

Patheon will perform and maintain an environmental monitoring program.  The collected data will be reviewed and interpreted by the responsible person within Patheon’s quality unit.  Any out of limit results will be managed appropriately in accordance with Patheon SOPs.

4.5

Production Controls

4.5.1

Technical Transfer

For all processes related to the Product developed outside of Patheon, the Client will provide technical information to support a technical transfer, including development reports, critical Deviations and OOS, related CAPA, and other relevant aspects of the product performance history.

4.5.2

Master Batch Record

The Client will provide the Specifications to Patheon and Patheon will manufacture Product in accordance with the Specifications.

 

Patheon is responsible for preparing the master batch records for the Product, however, the Client is responsible to review and approve the master batch records prior to the manufacture of the Product unless otherwise agreed to in writing.

 

Patheon will not make changes to master batch records except through the established Patheon change control system, and all master document revisions will be approved by the Client’s quality unit unless otherwise agreed to in writing.  Any changes made to issued batch records (prior to master revisions) must be reviewed and approved by the Client’s quality unit prior to implementation unless otherwise agreed to in writing.

 

Patheon will maintain a batch numbering system designed to assure traceability of the product and associated documentation.

4.5.3

Reprocessing and Rework

Patheon will not reprocess or rework the Product without the prior written consent of the Client.

 

Reprocessing is defined as the introduction of material back into the process and repeating a step, (e.g. redrying, remilling) using the same equipment and techniques of the established manufacturing process.

 

Rework is defined as the introduction of material to one or more processing steps that are different from the established manufacturing process.

4.5.4

Personnel Training

Patheon will provide appropriate training for all employees.  Each person engaged in the manufacture, packaging, testing, storage, and shipping of the Product will have the education, training, and experience necessary, consistent with current cGMP and safety training requirements.

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Master Manufacturing Services Agreement

4.6

Packaging, Labeling and Printed Materials

4.6.1

Master Batch Packaging Records

The Client will provide Patheon with the Specifications for all packaging components. Patheon will create, control, issue, and execute in accordance with the master batch packaging record and the Specifications.  

 

Patheon will not make changes to master batch packaging records except through the established Patheon change control system, and all master document revisions will be approved by the Client’s quality unit. Any changes made to issued batch records (prior to Master revisions) must be reviewed and approved by the Client’s quality unit prior to implementation unless agreed to in writing.

 

Patheon will maintain a batch numbering system designed to assure traceability of the product and associated documentation.

 

4.6.2

Printed Material and Artwork

The Client will provide artwork and labelling text (blister, carton, leaflet, label etc.) Specifications to Patheon.  The labelling proofs must be reviewed and approved by the Client.

4.6.3

Test Methods and Method Validation

The Client will provide test methods and method validation for packaging components to Patheon. Where applicable, Patheon will provide test methods and validation for packaging components purchased from Vendors on the Patheon approved Vendor list only (Appendix C).

4.7

Deviation Reports (DRs)

4.7.1

Deviations

Patheon will document, investigate and resolve deviations from approved manufacturing/packaging instructions or Specifications in accordance with Patheon’s SOPs.  

4.7.2

Notification of Deviations

Patheon will notify the Client within [**] Business Days if any significant deviation occurs during manufacture of the Product, where the deviation affects the quality, efficacy or availability of the Product.  

4.7.3

Client Support

As part of the written notification acknowledgement, Client will confirm if they require approval of the DR within [**] Business Days.  If no response is received, Patheon will proceed to complete in the investigation without Client approval.  A copy of the closed DR will be provided to Client if required.

 

As the Product license holder and technical Product/process expert the Client will provide technical and/or Product quality assessments in support of DRs, if required.  

 

If Client approval is required on a specific DR, Client will provide investigation comments or approval within [**] Business Days of receipt of draft or Patheon approved DR.  This Client approval will not be unreasonably withheld.  

4.8

Release of Product

4.8.1

Test Methods and Specifications

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Master Manufacturing Services Agreement

The Client will provide to Patheon the finished Product Specifications.

4.8.2

Batch Release for Shipment

Batch review and release for shipment will be the responsibility of Patheon’s Quality Assurance department who will act in accordance with Patheon's SOPs.

4.8.3

Certificate of Manufacture (Certificate of Compliance, Conformance, etc.)

For each batch certified by Patheon, Patheon will deliver to the Client a Certificate of Manufacture that will include a statement that the batch has been manufactured in accordance with cGMPs and the Specifications.

4.8.4

Certificate of Analysis

For each batch released by Patheon, Patheon will deliver to the Client a Certificate of Analysis with analytical data showing the batch complies with the Product Specifications.

4.8.5

Product Release

The Client will have sole responsibility for release of the Product to the market.  When Patheon EU Qualified Person (“QP”) services are employed, Patheon QP may release the Product for distribution on behalf of the Client.

 

4.9

Validation

4.9.1

Master Validation Plan

Patheon will establish applicable master validation plans and maintain a validation program for the Product.  The Client will review and approve performance qualification and process validation protocols and reports for the Product.

4.9.2

Cleaning Validation Program

The Client will provide required information (i.e. LD50, toxicity, solubility, batch size, fill volume, product min dose/70Kg patient) to establish cleaning limits.

 

In addition the Client will inform Patheon of any planned changes in dosing strategies, particularly smallest therapeutic and largest single dose prior to change in clinic or market to ensure cleaning limits justification remain applicable.

 

Patheon will maintain an appropriate cleaning and cleaning validation program.

4.9.3

Analytical Method and Procedure Validation

The Client will provide to Patheon non-compendial test methods.  The Client must ensure that its analytical methods and manufacturing procedures (including packaging procedures) are validated.  If the methods and procedures are not validated by the Client, then Patheon may assist in validation.

4.9.4

Process Validation

Subject to the terms of the MSA, Patheon, with technical support from the client, will conduct process validation for commercial products consistent with the regulations and guidelines for the intended market.  The Client will support the process validation program by supplying development details, technical Specifications and submission details.  Following the initial process and packaging validation, Patheon and the Client will be responsible to periodically assess the validated state of the product and conduct revalidation as necessary. 

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Master Manufacturing Services Agreement

4.10

change control

4.10.1

General

 

Patheon will notify the Client in accordance to Patheon’s SOPs before implementing any proposed changes to the process, materials, testing, equipment or premises, where such changes may directly affect the Product.  

 

The Client will be responsible for determining whether or not to initiate registration variation procedures, post approval changes, etc..., and for maintaining adequate control over the quality commitments of the marketing authorization made to the regulatory authorities by the Client for the Products.

 

The Client will review and provide any comments, regulatory advice, or Product implementation requirements related to any changes within [**] days of notice.  Patheon will proceed with implementation of changes if no response is received after [**] days.

 

Following validation of a process change, Patheon will deliver a copy of the related validation report to the Client and the associated stability data, if applicable, as it becomes available.

4.11

Documentation

4.11.1

Record Retention

Patheon will maintain all batch records for a minimum of [**] past Product expiry date and supply all these records to the Client upon request. Patheon will maintain records and evidence on the testing of raw materials and packaging/labeling materials for [**] after the materials were last used in the manufacture or packaging/labeling of the Product.

4.11.2

Batch Document Requisition

At the request of the Client, Patheon will provide a copy of any of the executed batch documents relating to Products to the Client as soon as reasonably possible.  This does not apply to processes that Patheon considers proprietary (e.g. specific gel capsule technologies).

4.11.3

Record Destruction

Following the expiry of the retention period, Patheon will provide notice to Client in accordance with the contact information set forth in Appendix B (or as updated in writing from time to time) of its intent to destroy the documents.  Client will have [**] days from the date of Patheon’s notice to notify Patheon in writing if Client wishes to have documents returned.  Client will then have up to [**] days from the date of Patheon’s notice to remove the documents from Patheon’s premises.

 

Patheon assumes no responsibility for documents destroyed after the expiry of the [**] day limit above.  Client will be solely responsible for providing Patheon with up-to-date contact information for notification purposes.  

4.12

Laboratory Controls

4.12.1

Specifications and Test Methods

Patheon will test and approve starting material, intermediate, and the finished Product in accordance with the approved Specifications, analytical methods, and Patheon’s SOPs.

 

The Client will provide to Patheon the API Specifications for furnished API, including a certificate of analysis for each batch.

 

- 14 -


Master Manufacturing Services Agreement

The Client will supply any required reference standards that are not readily available through a commonly recognized source.  These reference standards must be accompanied by a Certificate of Analysis listing the expiration date and any correction factors that need to be applied.

4.12.2

Out of Specifications (OOS) / Out of Trend (OOT)

Patheon and Client will notify each others’ quality unit of confirmed out-of-Specification (“OOS”) or out-of-trend (“OOT”) results within [**] Business Days.

 

If Client approval is required on a specific OOS, Client will provide investigation comments or approval within [**] Business Days of receipt of draft or Patheon approved OOS.  This Client approval will not be unreasonably withheld.  

 

For all confirmed OOS results generated by Patheon, Patheon will generate a DR type deviation as per Patheon SOPs and obtain approval of the DR from the Client’s responsible person within their quality unit.  This Client approval will not be unreasonably withheld.

4.13

Stability

4.13.1

Sample Storage

Patheon will store stability samples if and as required under the MSA.

4.13.2Stability Studies

The Client will develop and validate stability indicating assay(s) prior to process validation.  If required, Patheon may assist with this activity.

 

If applicable, Patheon will conduct stability studies in accordance with the agreed and validated stability testing analytical methods at the agreed upon testing points in accordance with the agreed stability protocol.

 

Patheon will perform the stability testing described in a stability protocol agreed to by both Patheon and the Client.  Stability data will be provided by Patheon to the Client on an ongoing basis as agreed to by both parties.

4.13.3

Stability Failures

Patheon will notify the Client of any potential OOS within [**] of the potential OOS being identified.  

 

Client will notify regulatory agencies in accordance with Section 4.17 of this Agreement.

 

4.13.4

API and Product Retest and Expiry Date

The Client will be responsible for establishing and approving the Retest and Expiry Date for all API and Product in compliance with all applicable regulatory requirements.

4.14

Annual Product Review

4.14.1

Annual Product Review

The Client will complete Annual Product Review (“APR”) in accordance with regulatory requirements of the Product marketed authorization, for example 21CFR 314.81(b)(2).  Patheon will provide copies of all information and correspondence necessary to support the APR when requested by the Client.

 

Client will provide a copy of the approved Final APR (redacted as applicable) where required.

 

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Master Manufacturing Services Agreement

4.14.2

Product Quality Report

Patheon will perform annual Product Quality Reports (“PQR”) applicable to the Services after commencement of commercial activities in compliance with all applicable regulatory requirements, for example 21CFR211.180e.  This will include, for example, status of batches processed, status of product deviations/investigations/CAPA, trending of complaints, status of stability studies maintained by Patheon, status of change controls, statistical trending of the finished product test results performed by Patheon, and a summary report of applicable finished product retained sample inspection. The PQR will be provided [**] after each anniversary date, unless agreed otherwise in writing.  

 

Upon receipt of the PQR from Patheon, the Client will complete the Final PQR with applicable Product information that Patheon does not have.  The Client will notify Patheon of any issues detected during the Final PQR potentially affecting processes supported by Patheon and will provide a summary of any related concerns or issues related to the services provided prior to Final PQR completion.  Client will provide a copy of the approved Final PQR (redacted as applicable) where required.

4.15

Storage and Distribution

4.15.1

General

Patheon will store and ship Product in accordance with the agreed qualified (and where required, validated) temperature, packaging, monitoring, and transportation requirements specified by the Client.

4.15.2

Product Storage and Shipment Changes

Patheon will communicate any proposed changes in storage or shipping to the Client for review and approval.  Client approval will not be unreasonably withheld.  

4.15.3

Product Quarantine

Patheon will have a system in place for assuring that unreleased Product is not shipped unless authorized by the Client’s quality unit.

4.16

Product Complaints

4.16.1

Complaint Investigation

The Client is responsible for investigating and resolving all medical and non-medical Product complaints, adverse events, etc....  Patheon will assist in the investigations involving all Patheon manufacturing and packaging type Product complaints related to the Manufacturing Services provided.

 

The Client is responsible to comply with all pharmacovigilence legislation.

 

Patheon will inform the Client within [**] of any complaints Patheon becomes aware of from other sources.  

4.16.2

Complaint Sample Retrieval

The Client is responsible for retrieving complaint sample(s) and forwarding them to Patheon in a timely manner to facilitate a complete and comprehensive investigation.  If the complaint sample(s) cannot be obtained and provided to Patheon, the Client will provide a written explanation detailing the reasons as to why the complaint sample cannot be obtained.

 

- 16 -


Master Manufacturing Services Agreement

In order for Patheon to conduct a valid investigation, the Client must provide:

 

 

(i)

A physical sample of the Product which triggered the Complaint.  An alternate option is for the Client to provide clear multiple digital photographs.  In those cases where a physical sample or photos are impossible to be retrieved and provided, Client documentation must be provided as evidence that reasonable efforts were made to obtain a sample.  

 

(ii)

Special handling instructions for the returned sample (i.e. refrigeration, Health & Safety concerns based on product, security for controlled drugs / narcotic) as applicable.

 

(iii)

Complete, clear concise information from the complainant.  This information needs to be reviewed by the Client prior to forwarding to Patheon and assessed on completeness before processing the Complaint to Patheon.  These include the following, as applicable

 

a.

Descriptive detailed odour descriptions

 

b.

Full Product Name, Lot number(s) (Patheon and Client), Dosage Form, Strength, pack size, Product Code Number (Patheon and Client), Expiry date

 

c.

Complaint Origin

 

d.

Market Country

 

e.

Client Complaint Number

 

f.

Client Severity Assignment

 

g.

Client Complaint Classification

4.17

Product Recall

4.17.1

Product Recall Notification

The Client and Patheon will notify each other about a Product Recall or other regulatory type product notification (e.g. US field alert, confirmed stability OOS notifications, suspected falsified product, etc…) related to the Product as soon as possible, but, in any event, prior to informing the appropriate regulatory authorities.

 

The Client will be responsible for all related Recall activities.  In the event of a confirmed falsified Product, the client will take all appropriate measures to physically and securely segregate Product from the legitimate Product supply chain, and the Client will inform the applicable authorities.  Patheon will assist in the investigations involving all Patheon manufacturing and packaging type Product complaints related to the Manufacturing Services provided.

 

Patheon will supply Client any related documentation, as requested, to support the Recall or other actions, including investigating Patheon activities as a deviation as outlined in Section 4.7.  Affected products at Patheon’s facility will be quarantined and labeled according to Patheon’s SOP.

4.17.2

Government Agency Notification

The Client will notify the appropriate regulatory authorities of any Field Alert, Recall, Falsified Product, etc… type quality issues.  

 

The Client will perform the Product recall and will communicate with the appropriate regulatory authorities.  

 

Where legislated, Patheon reserves the right to notify regulatory authorities of Product quality issues.  Patheon will inform the Client prior to any notification to the regulatory authorities.

- 17 -


Master Manufacturing Services Agreement

 

4.17

Reference and retention Samples

4.18.1

Excipient, Primary and Printed Packaging Materials, and Active Ingredient Reference Sample

Patheon will keep a reference sample of each material supplied to Patheon and used to manufacture the Product.  The reference sample will consist of at least [**] times the necessary quantity for all Quality Control tests required to determine whether the materials meet required Specifications.

 

Where applicable each packaging site will keep reference samples of each batch of primary and printed packaging materials.

 

The reference samples will be stored by Patheon under controlled conditions in accordance with cGMP storage requirements for [**] beyond the expiration date of the last batch of product containing the materials. The reference samples will be made available by Patheon to the Client, if requested.

4.18.2

Finished Product Retention Sample

Retention samples of finished Product will be retained by Patheon for [**] past Product expiry or such longer period as required by law.  Where applicable, the legal sample(s) of finished Product must be retained by the Client.

4.18.3

Sample Destruction

Following the expiry of the retention period, Patheon will provide notice to Client in accordance with the contact information set forth in Appendix B (or as updated in writing from time to time) of its intent to destroy the samples.  Client will have [**] days from the date of Patheon’s notice to notify Patheon in writing if Client wishes to have samples returned.  Client will then have up to [**] days from the date of Patheon’s notice to remove the samples from Patheon’s premises.

 

Patheon assumes no responsibility for samples destroyed after the expiry of the [**] day limit above.  Client will be solely responsible for providing Patheon with up-to-date contact information for notification purposes.

 

*   *   *


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Master Manufacturing Services Agreement

IN WITNESS WHEREOF, the parties have caused their duly authorized officer to execute and deliver this Quality Agreement as of the Effective Date identified on the first page:

 

TETRAPHASE PHARMACEUTICALS, INC.

 

By:

 

 

Date:

 

Name:

 

 

 

 

Title:

 

 

 

 

 

PATHEON ITALIA S.p.A

 

By:

 

 

Date:

 

Name:

 

 

 

 

Title:

 

 

 

 

 

 

 


- 19 -


Master Manufacturing Services Agreement

Section 5: APPENDICES

note, appendices can change independent of the Quality Agreement upon written confirmation by each party.

 

Appendix A: Product(s)

 

Appendix B: Quality Contacts

 

Appendix C: Patheon Approved Supplier List

 

Appendix D: Client Approved Supplier List

 

Appendix E: Patheon Approved Contract Manufacturers and Laboratories List

 


- 20 -


Master Manufacturing Services Agreement

Appendix A TO THE QUALITY AGREEMENT BETWEEN TETRAPHASE PHARMACEUTICALS, INC. AND PATHEON DATED <EFFECTIVE DATE HERE>:

Product(s)

 

Product (s)

Dosage Form

Dosage (Strength)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 21 -


Master Manufacturing Services Agreement

Appendix B TO THE QUALITY AGREEMENT BETWEEN TETRAPHASE PHARMACEUTICALS, INC. AND PATHEON DATED <EFFECTIVE DATE HERE>:

Quality Contacts

 

 

Patheon

 

(Client)

Responsibility

QUALITY ASSURANCE

QUALITY ASSURANCE

Name

 

 

Title

 

 

Phone

 

 

E-mail

 

 

Address

 

 

 

Responsibility

QUALITY CONTROL

QUALITY CONTROL

Name

 

 

Title

 

 

Phone

 

 

E-mail

 

 

Address

 

 

 

Responsibility

BUSINESS

BUSINESS

Name

 

 

Title

 

 

Phone

 

 

E-mail

 

 

Address

 

 

 

 


- 22 -


Master Manufacturing Services Agreement

Appendix C TO THE QUALITY AGREEMENT BETWEEN TETRAPHASE PHARMACEUTICALS, INC. AND PATHEON DATED <EFFECTIVE DATE HERE>:

Patheon Approved Vendor List

 

MATERIAL NUMBER

DESCRIPTION

MANUFACTURER NAME

MANUFACTURER CITY/PROVINCE/
STATE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


- 23 -


Master Manufacturing Services Agreement

Appendix D TO THE QUALITY AGREEMENT BETWEEN TETRAPHASE PHARMACEUTICALS, INC. AND PATHEON DATED <EFFECTIVE DATE HERE>:

Client Approved Vendor List

 

MATERIAL NUMBER

DESCRIPTION

MANUFACTURER NAME

MANUFACTURER CITY/PROVINCE/
STATE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


- 24 -


Master Manufacturing Services Agreement

Appendix e TO THE QUALITY AGREEMENT BETWEEN TETRAPHASE PHARMACEUTICALS, INC. AND PATHEON DATED <EFFECTIVE DATE HERE>:  

PATHEON APPROVED CONTRACT MANUFACTURERS AND lABORATORIES LIST

 

Contractor Name

Address

Contact Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This list does not include any contractors specified by individual clients of Patheon Inc.

In addition to Patheon Inc.’s Quality Control Laboratory, the approved contract labs are used only in situations when:

 

a)

Patheon Inc., does not have the equipment to perform the testing, or,

 

b)

Patheon Inc., does not have enough resources available to perform the testing

 

- 25 -


Master Manufacturing Services Agreement

Appendix e TO THE QUALITY AGREEMENT BETWEEN TETRAPHASE PHARMACEUTICALS, INC. AND PATHEON DATED <EFFECTIVE DATE HERE>:  

APPENDIX E: API starting materials EU requirementS

The Customer is responsible for providing Patheon with the following on any supplied API:

Registration information

-all registered API manufacturing sites including addresses & functions;

-approved registered file (CTD module 3.2.S) and any relevant update;

 

-

latest Certificate of suitability to the European Pharmacopoeia (CEP), Active Substance Master File (ASMF) or scientific data in force (as applicable).

Regulatory compliance information

-for API sourced from an EU Member State:

 

o

proof of the manufacturer, distributor & importer registration in the relevant Member State (EUDRA GMDP);

 

o

manufacturer GMP & distributor GDP certificate from the National Competent Authority as available (EUDRA GMDP);

 

-

for API sourced from a non listed Third country (waiver for listed ones):

 

o

EU Member State or foreign authority GMP certificate;

 

o

API EU GMP compliance “written confirmation” as per official template;

 

-

for all: TSE/ BSE (or viral safety where applicable), Residual Solvents, Genotoxic Impurities, Residues of Metal Catalyst and Reagent information.

Quality compliance information

-Proof of the API manufacturer GMP/GDP compliance via audit reports (on site availability);

-Well identified and documented API supply chain (including API manufacturers, brokers,

traders, repackers, relabellers, micronisers and importers).

Current EU regulation references

 

-

Compilation of the Community Procedures on Inspections and Exchanges of Information (version in force):

 

o

Union format for registration of Manufacturer, Importer or Distributor of Active Substance;

 

o

Union format for a GMP certificate [including active substances];

 

o

Union format for a GDP certificate for active substances to be used as starting materials.

 

-

GMP Guide Part I: Basic Requirements for Medicinal Products (version in force):

 

o

Chapter 5: Production ;

 

o

Chapter 7: Outsourced activities,

 

-

GMP Guide Part II: Basic Requirements for Active Substances used as Starting Material (version in force).

 

-

GMP Guide Q&As – Part II: questions 8,9,10 (version in force).

- 26 -


Master Manufacturing Services Agreement

 

-

GDP for active substances: [SANCO/D/6/SF/mg/ddg1.d.6(2013)179367] draft (FEB/2013).

 

-

Directive 2011/62/EU (JUL/2011) articles 46, 46 b (2), 47, 111b and derivative texts:

 

o

Implementing decision on the assessment of a third country’s regulatory framework applicable to active substances of medicinal products for human use [2013/51/EU] (JAN/2013);

 

o

Template for written confirmation [SANCO/SFS/SF/mg/ddg1.d.6(2013)118630] (version in force) & Q&As [SANCO/D/6/] (version in force);

 

o

Implementing regulation on principles and guideline for GMP for AS [(EU) n°1252/2014] (MAY/2014)

 

-

EMA/334808/2014: Qualified Person’s declaration concerning GMP compliance of the active substance manufacture - “The QP declaration template” and guidance for the “QP declaration template EMA/196292/2014 (version in force).

 

-

EMA/410/01: Note for guidance on guidance on minimising the risk of transmitting animal spongiform encephalopathy agents via human and veterinary medicinal product (version in force).

 

-

Ph. Eur. 5.2.8: Minimising the risk of transmitting animal spongiform encephalopathy agents via human and veterinary medicinal products.

 

-

EU EMA/CHMP/ICH/82260/2006: (ICH topic Q3C R5) Impurities - guideline for residual solvents (version in force) + annexes I & II CPMP/QWP/450/03 (version in force)

 

-

Ph. Eur. Chapter 5.4: Residual Solvents.

 

-

EMEA/CHMP/SWP/4446/2000: Guideline on the specification limits for residues of metal catalysts or metal reagents (version in force).

 

-

Ph Eur Chapter 5.20: Metal catalyst and metal reagents residues.

 

-

ICHQ3D Draft guideline for elemental impurities (step 4) (DEC/2014).

 

-

CPMP/SWP/5199/02 - EMEA/CHMP/QWP/251344/2006: Guideline on the limits of genotoxic impurities (version in force) + Q&As EMA/CHMP/SWP/431994/2007 (version in force).

 

 

- 27 -


Exhibit 10.9

Master Manufacturing Services Agreement

EXHIBIT C

QUARTERLY ACTIVE MATERIALS INVENTORY REPORT

 

 

TO:

TETRAPHASE PHARMACEUTICALS, INC.

 

 

FROM:

PATHEON UK LIMITED [or applicable Patheon Affiliate]

 

RE:

Active Materials quarterly inventory report under Section 2.2(a) of the Master Manufacturing Services Agreement dated • (the "Agreement")

 

 

Reporting quarter:

 

 

 

 

 

 

 

 

 

Active Materials on hand

 

 

 

 

at beginning of quarter:

 

 

kg

(A)

 

 

 

 

 

Active Materials on hand

 

 

 

 

at end of quarter:

 

 

kg

(B)

 

 

 

 

 

Quantity Received during quarter:

 

 

kg

(C)

 

 

 

 

 

Quantity Dispensed1 during quarter:

 

 

kg

 

(A + C – B)

 

 

 

 

 

 

 

 

 

Quantity Converted during quarter:

 

 

kg

 

(total Active Materials in Products produced

 

 

 

 

and not rejected, recalled or returned)

 

 

 

 

 

Capitalized terms used in this report have the meanings given to the terms in the Agreement.

 

PATHEON UK LIMITED

 

DATE:

 

[or applicable Patheon Affiliate]

 

 

 

 

 

 

 

 

Per:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

 

 

 

1 

Excludes any (i) Active Materials that must be retained by Patheon as samples, (ii) Active Materials contained in Product that must be retained as samples, (iii) Active Materials used in testing (if applicable), and (iv) Active Materials received or consumed in technical transfer activities or development activities, including, without limitation, any regulatory, stability, validation, or test batches manufactured during the quarter.

 


Master Manufacturing Services Agreement

 

 

- 2 -


Exhibit 10.9

Master Manufacturing Services Agreement

EXHIBIT D

REPORT OF ANNUAL ACTIVE MATERIALS INVENTORY RECONCILIATION

AND CALCULATION OF ACTUAL ANNUAL YIELD

 

TO:

TETRAPHASE PHARMACEUTICALS, INC.

 

FROM:

PATHEON UK LIMITED [or applicable Patheon Affiliate]

 

RE:

Active Materials annual inventory reconciliation report and calculation of Actual Annual Yield under Section 2.2(a) of the Master Manufacturing Services Agreement dated • (the "Agreement")

 

 

Reporting Year ending:

 

 

 

 

 

 

 

 

 

Active Materials on hand

 

 

 

 

at beginning of Year:

 

 

kg

(A)

 

 

 

 

 

Active Materials on hand

 

 

 

 

at end of Year:

 

 

kg

(B)

 

 

 

 

 

Quantity Received during Year:

 

 

kg

(C)

 

 

 

 

 

Quantity Dispensed2 during Year:

 

 

kg

(D)

(A + C – B)

 

 

 

 

 

 

 

 

 

Quantity Converted during Year:

 

 

kg

(E)

(total Active Materials in Products produced

 

 

 

 

and not rejected, recalled or returned)

 

 

 

 

 

 

 

 

 

Active Materials Credit Value:        USD/EUR

 

 

/ kg

(F)

 

 

 

 

 

Target Yield:

 

 

%

(G)

 

 

 

 

 

Actual Annual Yield:

 

 

%

(H)

((E ∕ D) * 100)

 

 

 

 

 

 

 

 

 

Shortfall:

USD/EUR

 

 

 

(I)

(((G – 5) - H) ∕ 100) * F * D

(if a negative number, insert zero)

 

 

 

Based on the foregoing reimbursement calculation Patheon will reimburse Client the amount of USD/EUR              .

 

2 

Excludes any (i) Active Materials that must be retained by Patheon as samples, (ii) Active Materials contained in Product that must be retained as samples, (iii) Active Materials used in testing (if applicable), and (iv) Active Materials received or consumed in technical transfer activities or development activities, including, without limitation, any regulatory, stability, validation, or test batches manufactured during the Year.

 


Master Manufacturing Services Agreement

 

Capitalized terms used in this report have the meanings given to the terms in the Agreement.

 

DATE:

 

 

 

PATHEON UK LIMITED

[or applicable Patheon Affiliate]

 

Per:

 

 

Name:

 

 

Title:

 

 

 

ActiveUS 163370610

 

 

- 2 -

 

Exhibit 10.10

 

 

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Double asterisks denote omissions.

 

CONFIDENTIAL

LICENSE AGREEMENT

BY AND BETWEEN

Tetraphase Pharmaceuticals, INC.

AND

EVEREST MEDICINES LIMITED

 

 

 

 

 

 


CONFIDENTIAL

TABLE OF CONTENTS

ARTICLE I.DEFINITIONS

 

1

 

 

 

ARTICLE II. LICENSES; EXCLUSIVITY

 

16

 

 

 

Section 2.01 Grants of Licenses

 

16

Section 2.02 Rights to Sublicense or Subcontract

 

17

Section 2.03 No Other Rights and Retained Rights

 

17

Section 2.04 Knowledge Transfer

 

18

Section 2.05 In-License Agreements

 

19

Section 2.06 Exclusivity

 

19

Section 2.07 Diligence

 

21

Section 2.08 Field or Licensed Product Expansion

 

21

Section 2.09 ROFN

 

22

 

 

 

ARTICLE III. GOVERNANCE

 

23

 

 

 

Section 3.01 General

 

23

Section 3.02 Joint Steering Committee

 

23

Section 3.03 Joint Development Committee

 

24

Section 3.04 Joint Commercialization Committee

 

25

Section 3.05 Membership

 

25

Section 3.06 Meetings

 

26

Section 3.07 Committee Decision Making

 

26

Section 3.08 Executive Officers; Disputes

 

26

Section 3.09 Final Decision-Making Authority

 

26

Section 3.10 Limitations on Decision-Making

 

27

Section 3.11 Scope of Governance

 

28

Section 3.12 Alliance Managers

 

28

 

 

 

ARTICLE IV. DEVELOPMENT

 

29

 

 

 

Section 4.01 Development in the Field in the Territory

 

29

Section 4.02 Development Reports

 

29

Section 4.03 Standards of Conduct

 

30

Section 4.04 Records

 

30

Section 4.05 Development Costs

 

30

 

 

 

ARTICLE V. REGULATORY

 

31

 

 

 

Section 5.01 Regulatory Filings

 

31

 

 

 

i


CONFIDENTIAL

ARTICLE VI. COMMERCIALIZATION

 

32

 

 

 

Section 6.01 General

 

32

Section 6.02 Promotional Materials

 

32

Section 6.03 Commercialization Reports

 

32

Section 6.04 Commercialization Efforts

 

32

Section 6.05 Standards of Conduct

 

32

Section 6.06 Trademarks

 

33

 

 

 

ARTICLE VII. MANUFACTURE AND SUPPLY

 

34

 

 

 

Section 7.01 Supply Obligations

 

34

Section 7.02 Supply Agreements

 

34

 

 

 

ARTICLE VIII. PAYMENTS

 

35

 

 

 

Section 8.01 Upfront Payment

 

35

Section 8.02 Development Milestone Payment

 

35

Section 8.03 Sales Milestone Payments

 

35

Section 8.04 Royalties

 

36

Section 8.05 Royalty Payments and Reports

 

37

Section 8.06 Financial Responsibility for In-License Agreements

 

38

Section 8.07 Accounting

 

38

Section 8.08 Currency Conversion

 

38

Section 8.09 Methods of Payment

 

39

Section 8.10 Taxes

 

39

Section 8.11 Late Payments

 

39

 

 

 

ARTICLE IX. OWNERSHIP OF INTELLECTUAL PROPERTY

 

40

 

 

 

Section 9.01 Tetraphase Intellectual Property

 

40

Section 9.02 Licensee Intellectual Property

 

40

Section 9.03 Joint Technology

 

40

Section 9.04 Prosecution of Patent Rights

 

40

Section 9.05 Enforcement and Defense

 

41

Section 9.06 Defense of Third Party Infringement and Misappropriation Claims

 

43

Section 9.07 Patent Term Extensions

 

44

Section 9.08 Trademarks

 

44

Section 9.09 Recordal

 

44

 

 

 

ARTICLE X. DATA SECURITY AND ADVERSE DRUG EVENTS AND REPORTS

 

44

 

 

 

Section 10.01 Data Security

 

44

Section 10.02 Complaints

 

44

Section 10.03 Adverse Drug Events

 

45

 

 

 

ii


CONFIDENTIAL

ARTICLE XI. REPRESENTATIONS, WARRANTIES, AND COVENANTS

 

45

 

 

 

Section 11.01 Mutual Representations and Warranties

 

45

Section 11.02 Mutual Covenants

 

46

Section 11.03 Additional Tetraphase Warranties

 

46

Section 11.04 Additional Licensee Warranties and Covenants

 

48

Section 11.05 Additional Tetraphase Warranty and Covenant

 

48

Section 11.06 Anti-Corruption

 

48

Section 11.07 Disclaimer

 

49

Section 11.08 Limitation of Liability

 

49

 

 

 

ARTICLE XII. CONFIDENTIALITY

 

50

 

 

 

Section 12.01 Generally

 

50

Section 12.02 Exceptions

 

50

Section 12.03 Permitted Disclosures

 

51

Section 12.04 Publicity

 

51

Section 12.05 Publications

 

52

Section 12.06 Injunctive Relief

 

52

 

 

 

ARTICLE XIII. INDEMNIFICATION

 

52

 

 

 

Section 13.01 Indemnification by Tetraphase

 

52

Section 13.02 Indemnification by Licensee

 

53

Section 13.03 Procedure

 

53

Section 13.04 Insurance

 

53

Section 13.05 Indemnification of Harvard

 

54

 

 

 

ARTICLE XIV. TERM AND TERMINATION

 

54

 

 

 

Section 14.01 Term

 

54

Section 14.02 Termination for Patent Right Challenge

 

54

Section 14.03 Termination for Breach

 

54

Section 14.04 [Intentionally Left Blank].

 

55

Section 14.05 Termination for Bankruptcy and Rights in Bankruptcy

 

55

Section 14.06 Automatic Termination of In-Licensed Rights

 

56

Section 14.07 Effect of Termination

 

57

Section 14.08 Survival; Accrued Rights

 

58

 

 

 

ARTICLE XV. DISPUTE RESOLUTION; GOVERNING LAW

 

59

 

 

 

Section 15.01 Arbitration

 

59

Section 15.02 Choice of Law

 

60

Section 15.03 Language

 

60

 

 

 

iii


CONFIDENTIAL

ARTICLE XVI. MISCELLANEOUS

 

60

 

 

 

Section 16.01 Assignment

 

60

Section 16.02 Acquisitions

 

60

Section 16.03 Force Majeure

 

61

Section 16.04 Entire Agreement

 

61

Section 16.05 Severability

 

61

Section 16.06 Notices

 

61

Section 16.07 Agency

 

62

Section 16.08 No Waiver

 

63

Section 16.09 Cumulative Remedies

 

63

Section 16.10 No Third Party Beneficiary Rights

 

63

Section 16.11 Use of Harvard Name

 

63

Section 16.12 Performance by Affiliates, Sublicensees or Subcontractors

 

63

Section 16.13 Counterparts

 

63

 

LIST OF EXHIBITS

Exhibit A – List of Tetraphase Patent Rights Existing as of the Effective Date

Exhibit BDevelopment Plan Framework

Exhibit C – Development Plan

Exhibit D – Personnel Rates

Exhibit E – List of In-License Agreements Existing as of the Effective Date

LIST OF SCHEDULES

Schedule 1.45 – Eravacycline

Schedule 1.77 – TP-6076

Schedule 2.04 – Specified Tetraphase Know-How

 

 

iv


 

LICENSE AGREEMENT

THIS LICENSE AGREEMENT (this “Agreement”) is made and entered into as of February 20, 2018 (“Effective Date”) between Tetraphase Pharmaceuticals, Inc., a corporation organized and existing under the laws of Delaware with a principal place of business at 480 Arsenal Street, Suite 110, Watertown, MA 02472 (“Tetraphase”), and Everest Medicines Limited, an exempted company organized and existing under the laws of Cayman Islands, with a principal place of business at Suite 4508, 45F, Tower 2, Plaza 66, 1266 Nanjing Xi Lu, Shanghai 200040, China (“Licensee”).

Tetraphase and Licensee may be referred to herein individually as a “Party and collectively as the Parties”.

RECITALS

WHEREAS, Tetraphase is the owner of, or otherwise controls, the Tetraphase Technology in the Territory (each as defined below);

WHEREAS, Licensee has expertise in the development of biopharmaceutical products and has regulatory and commercial capabilities in the Territory, and is interested in obtaining an exclusive license to Develop and Commercialize the Licensed Products in the Territory, and a right to negotiate for the right to Manufacture the Licensed Products in the Territory (each as defined below); and

WHEREAS, the Parties desire to collaborate to Develop, Manufacture and Commercialize the Licensed Products in the Territory;

NOW THEREFORE, the Parties agree as follows:

ARTICLE I.

DEFINITIONS

Section 1.01Accounting Standards” means, with respect to (a) Licensee or any of its Affiliates or sublicensees, U.S. GAAP, consistently applied, or (b) Tetraphase or any of its Affiliates or licensees, generally accepted accounting principles applicable to such entity, consistently applied.  

Section 1.02Affiliate means, with respect to an entity, any corporation or other business entity controlled by, controlling, or under common control with such entity, with “control” meaning (a) direct or indirect beneficial ownership of at least fifty percent (50%) of the voting stock of, or at least a fifty percent (50%) interest in the income of, the applicable entity (or such lesser percentage that is the maximum allowed to be owned by a foreign entity in a particular jurisdiction and is sufficient to grant the holder of such voting stock or interest the power to direct the management and policies of such entity) or (b) possession, directly or indirectly, of the power to direct the management and policies of an entity, whether through ownership of voting securities, by contract relating to voting rights or corporate governance or otherwise.

1


 

Section 1.03APImeans active pharmaceutical ingredient.

Section 1.04API Bulk Drug Substancemeans the Licensed Compound in bulk form manufactured for use as an API.

Section 1.05Business Daymeans a day other than (a) a Saturday or a Sunday or (b) a day on which banking institutions in Boston, Massachusetts, or in Beijing, China are authorized or required by Law to remain closed.

Section 1.06CFDA” means the China Food and Drug Administration, including its divisions and the Center for Drug Evaluation, and local counterparts thereto, and any successor agency or authority thereto having substantially the same function.

Section 1.07cIAImeans complicated intra-abdominal infection.

Section 1.08Commercialization” or “Commercializemeans, with respect to a pharmaceutical product, any and all activities directed to the marketing, promotion, importation, distribution, pricing, Reimbursement Approval, offering for sale, or sale of such pharmaceutical product, and interacting with Regulatory Authorities regarding the foregoing.  Commercialization shall exclude Research and Manufacturing.

Section 1.09Commercialization Planmeans the annual plan for Commercialization of Licensed Products in the Field in the Territory and the activities to be conducted by Licensee relating thereto, including detailed plans for sales and marketing after launch, sales and marketing budgets and sales forecasts and target numbers regarding reach and frequency of sales performance, which plan Licensee shall ensure is at all times consistent with the terms and conditions of this Agreement and all In-License Agreements.

Section 1.10Commercially Reasonable Effortsmeans, with respect to the Development, Manufacture or Commercialization of any Licensed Product, those efforts and resources, including reasonably necessary personnel, equivalent to the efforts that a similarly situated biopharmaceutical company would typically devote to a product owned by it of similar market potential, profit potential and strategic value and at a comparable stage in development or product life to such Licensed Product, as applicable, based on conditions then prevailing and taking into account issues of safety and efficacy, product profile, difficulty in developing such Licensed Product, as applicable, competitiveness of alternative Third Party products in the marketplace, the patent or other proprietary position of such Licensed Product, as applicable, the regulatory structure involved and the potential profitability of such Licensed Product, as applicable, but not taking into account any payment obligations under this Agreement.

Section 1.11Competing Product means any product that is in the tetracycline class and intended to treat any indication that is, at the relevant time, in the Field, but excluding (a) the Licensed Compound, (b) the Licensed Product, and (c) TP-6076.  

Section 1.12Confidential Informationmeans, subject to Section 12.02(a)-(d), Know-How and any technical, scientific, trade, research, manufacturing, business, financial, marketing, product, supplier, intellectual property or other information that may be disclosed by one Party or any of its Affiliates to the other Party or any of its Affiliates, regardless of whether

2


 

such information is specifically designated as confidential and regardless of whether such information is in written, oral, electronic, or other form.  Notwithstanding the foregoing, subject to Section 12.02(a)-(d), all information that (a) was disclosed prior to the Effective Date by or on behalf of either Party or any of its Affiliates under, and subject to, the Confidentiality Agreement by and between Tetraphase and Licensee, dated August 18, 2017 (“Confidentiality Agreement”), (b) is “Proprietary Information” as defined in the Confidentiality Agreement, and (c) is not subject to Section 5(a), 5(b), 5(c) or 5(d) of the Confidentiality Agreement as of the Effective Date (as defined in this Agreement), shall be deemed “Confidential Information” hereunder.  

Section 1.13Controlled means, subject to Section 16.02 (Acquisitions), with respect to a Party or any of its Affiliates, and any Know-How, Patent Right, Regulatory Documents or other intellectual property right, that such Party or Affiliate, as the case may be, has the ability (other than pursuant to a license granted to such Party or Affiliate, as the case may be, under this Agreement) to grant to the other Party a license or sublicense to, or other right with respect to, such Know-How, Patent Right, Regulatory Documents or other intellectual property right without violating the terms of any pre-existing agreement or other pre-existing arrangement with any Third Party; provided, however, that, if a Party or any of its Affiliates obtains rights to any Know-How, Patent Rights, Regulatory Documents or other intellectual property rights through any license agreement that is not an In-License Agreement, such Party or Affiliate shall only be deemed to “Control” such Know-How, Patent Rights or other intellectual property rights, as applicable, for purposes of this Agreement, (a) to the extent such license agreement does not conflict with any provision of this Agreement and (b) to the extent such license agreement conflicts with this Agreement or includes additional obligations not set forth in this Agreement, the other Party agrees in writing to be bound by all applicable obligations set forth in such license agreement (including the obligation to pay royalties, milestones, sublicense income and the pro rata share of the other costs associated with such license agreement to the extent that such costs apply to any activity by or on behalf of such other Party (or any of its Affiliates or (sub)licensees) under this Agreement).

Section 1.14Cost of Goods SoldorCOGSmeans, with respect to a particular Licensed Product, the Manufacturing cost for such Licensed Product, which (a) to the extent such Licensed Product is Manufactured by Tetraphase or its Affiliates, shall approximate a reasonable definition of cost of goods sold for such Licensed Product with no markup and shall be further specified in the Supply Agreement and (b) to the extent such Licensed Product is Manufactured by a Third Party, the actual, documented out-of-pocket costs paid to such Third Party for the Manufacture of such Licensed Product.  

Section 1.15Cover, Covering or Covered means, with respect to a product, composition, technology, process or method and a Patent Right, that, in the absence of ownership of, or a license granted under, a claim in such Patent Right, the manufacture, use, offer for sale, sale or importation of such product or composition or the practice of such technology, process or method would infringe such claim (or, in the case of a claim of a pending patent application, would infringe such claim if it were to issue as a claim of an issued patent).

Section 1.16[Intentionally Left Blank].

3


 

Section 1.17Developmentmeans all (a) clinical development and regulatory activities regarding a pharmaceutical compound or product, as the case may be, including (i) clinical trials of such pharmaceutical compound or product; (ii) preparation, submission, review, and development of data or information for the purpose of submission to a Regulatory Authority to obtain authorization to conduct clinical trials or obtain Regulatory Approval of such pharmaceutical product; and (iii) Medical Affairs with respect to such pharmaceutical compound or product, and (b) with respect to the activities of Licensee, solely (i) to the extent agreed upon within the JSC or required by a relevant Regulatory Authority in the Territory to obtain or maintain a Regulatory Approval contemplated by this Agreement, and (ii) on a non-exclusive basis unless otherwise agreed by the Parties, non-clinical or pre-clinical activities conducted in support of the foregoing, the Development Plan, the Launch Plan or the Commercialization Plan.  Development shall include clinical trials initiated following receipt of Regulatory Approval, but shall exclude Research (except as set forth in clause (b)), Manufacturing and Commercialization.

Section 1.18Development Planmeans the plan setting out activities to be undertaken in Developing the Licensed Products in the Field in the Territory, together with timelines for such activities, including the proposed clinical trials and regulatory plans, as well as outlining the key elements involved in obtaining Regulatory Approval of the Licensed Products in the Field in the Territory, as may be amended from time to time in accordance with Section 4.01 (Development in the Field in the Territory), which plan (a) Licensee shall ensure is at all times consistent with the terms and conditions of this Agreement and all In-License Agreements, (b) Licensee shall ensure is focused on efficiently obtaining Regulatory Approval for Licensed Products in each Jurisdiction in the Territory, while taking into consideration potential impacts on the Development or Commercialization of any Eravacycline Product outside of the Territory or Field and (c) shall include in reasonable detail (i) all Development activities reasonably anticipated to be undertaken by the Licensee Entities, (ii) the endpoints for all clinical trials contemplated by such plan, (iii) which clinical trial is intended to be a pivotal trial and (iv) all regulatory activities and interactions anticipated to be conducted by the Licensee Entities in support of Regulatory Approval of the Licensed Products in the Field in the Territory, including all planned Regulatory Filings to be submitted in connection with such approvals.  

Section 1.19Dollars” or “$means the legal tender of the U.S.

Section 1.20Drug Approval Application means a New Drug Application as defined in the FD&C Act, or an equivalent application filed with any Regulatory Authority in any country other than the United States.

Section 1.21Eravacycline Materialsmeans API Bulk Drug Substance, intermediates required to Manufacture Finished Drug Product, and Finished Drug Product.

Section 1.22Eravacycline Productmeans any pharmaceutical product that has the Licensed Compound as at least one API.

Section 1.23Existing Regulatory Documentsmeans Regulatory Documents Controlled by Tetraphase or any of its Affiliates as of the Effective Date.

4


 

Section 1.24FDA means the U.S. Food and Drug Administration or any successor agency thereto.

Section 1.25FD&C Actmeans the U.S. Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et seq., as amended from time to time.

Section 1.26Fieldmeans (a) the treatment of (i) cIAI and (ii) any indication other than cIAI for which any Tetraphase Entity files a Drug Approval Application for any Licensed Product in the United States or anywhere else outside the Territory and (b) any other human indication agreed by the Parties pursuant to Section 2.08 (Field or Licensed Product Expansion).  

Section 1.27Finished Drug Productmeans the finished product formulation of a Licensed Product, containing API Bulk Drug Substance, filled into unit packages for final labeling and packaging, and as finally labeled and packaged in a form ready for administration.

Section 1.28First Commercial Salemeans, for each Licensed Product in the Field in a Jurisdiction, the first sale for end use or consumption of such Licensed Product in the Field in such Jurisdiction by any Licensee Entity (or, following termination, solely for purposes of the “Royalty Term” definition set forth in Section 2.01(c), any Tetraphase Entity) after the granting of Regulatory Approval for such Licensed Product in the Field in such Jurisdiction by the relevant Regulatory Authorities.  Sales prior to receipt of Regulatory Approval for such Licensed Product, such as so-called “treatment IND sales,” “named patient sales,” and “compassionate use sales,” shall not be construed as a First Commercial Sale.

Section 1.29Generic Product means, with respect to a given Licensed Product in a Jurisdiction, any pharmaceutical preparation that (a) contains Licensed Compound as its sole active pharmaceutical ingredient, (b) is marketed for sale in such Jurisdiction by a Third Party (other than a Licensee Entity) that is not authorized directly or indirectly by any Licensee Entity, and (c) receives Regulatory Approval for sale in such Jurisdiction in reliance, based in whole or in part, on the prior Regulatory Approval (or on safety or efficacy data submitted in support of such prior Regulatory Approval) of such Licensed Product as determined by the applicable Regulatory Authority or is approved for sale in reliance, in whole or in part, on the existing drug standard already approved by the applicable Regulatory Authority (unless a Licensee Entity authorizes the applicable Third Party to access, use or reference, such Regulatory Approval, data or drug standard).  

Section 1.30Good Clinical Practices” or “GCPmeans the then-current good clinical practice standards, practices, and procedures promulgated or endorsed by any applicable Regulatory Authority as set forth in the guidelines imposed by such Regulatory Authority, as may be updated from time to time.

Section 1.31Good Laboratory Practices” or “GLPmeans the then-current good laboratory practice standards, practices, and procedures promulgated or endorsed by any applicable Regulatory Authority as set forth in the guidelines imposed by such Regulatory Authority, as may be updated from time to time.

5


 

Section 1.32Governmental Authority means any federal, national, multinational, state, provincial, country, city or local government or any court, arbitrational tribunal, administrative agency or commission or government authority acting under the authority of any federal, national, multinational, state, provincial, country, city or local government.

Section 1.33Harvard Agreement means the License Agreement by and between Tetraphase and the President and Fellows of Harvard College (“Harvard”), dated as of August 3, 2006, as amended from time to time.

Section 1.34In-License Agreement means (a) the Harvard Agreement or (b) any other agreement between Tetraphase or any of its Affiliates, on the one hand, and one or more Third Parties, on the other hand, pursuant to which Tetraphase or any of its Affiliates acquires Control of any Know-How or Patent Rights that are Tetraphase Know-How or Tetraphase Patent Rights that the Parties mutually agree in writing is an In-License Agreement.

Section 1.35INDmeans an Investigational New Drug application for submission to the FDA or any equivalent counterpart application in any country other than the United States, including all supplements and amendments thereto.

Section 1.36Inventionmeans any invention, process, method, composition of matter, article of manufacture, discovery or finding that is conceived or reduced to practice (whether or not patentable).

Section 1.37Joint Invention means any Invention that is jointly conceived or reduced to practice during the Term by any employee, agent or contractor of Tetraphase or any of its Affiliates, on the one hand, and any employee, agent or contractor of Licensee or any of its Affiliates, on the other hand.

Section 1.38Joint Know-Howmeans any Know-How that is identified, conceived, reduced to practice, discovered, authored or developed jointly by any employee, agent or contractor of Tetraphase or any of its Affiliates, on the one hand, and any employee, agent or contractor of Licensee or any of its Affiliates, on the other hand

Section 1.39Joint Patent Rightsmeans all Patent Rights claiming Joint Inventions or Covering Joint Know-How.

Section 1.40Joint Technology means Joint Know-How and Joint Patent Rights.

Section 1.41Jurisdictionmeans each of the following:  mainland China, Taiwan, Hong Kong, Macau, South Korea or Singapore.

Section 1.42Know-How means Inventions, discoveries, trade secrets, information, experience, data, formulas, procedures, technology and results (whether or not patentable), including discoveries, formulae, practices, methods, knowledge, know-how, processes, experience and test data (including physical, chemical, biological, toxicological, pharmacological, clinical and veterinary data), dosage regimens, control assays, product specifications, analytical and quality control data, and marketing, pricing, distribution cost and sales data or descriptions; but excluding Patent Rights.

6


 

Section 1.43Launch Plan means the strategic plan for the Licensed Products in the Field in the Territory that details the activities to be conducted prior to launch, plans for launch, and activities to be conducted after launch.

Section 1.44Law means any law, statute, rule, regulation, order, judgment, standard or ordinance of any Governmental Authority.

Section 1.45Licensed Compoundmeans the compound identified on Schedule 1.45, and any metabolite, salt, ester, hydrate, solvate, isomer, enantiomer, free acid form, free base form, crystalline form, co-crystalline form, amorphous form, pro-drug (including ester pro-drug) form, racemate, polymorph, chelate, stereoisomer, tautomer or optically active form of any of the foregoing.  

Section 1.46Licensed Product means any pharmaceutical product that (a) has the Licensed Compound as its sole API and (b) is in a form (i) for which any Tetraphase Entity (A) is Developing in the United States as of the Effective Date or (B) files a Drug Approval Application in the United States or anywhere else outside the Territory after the Effective Date, or (ii) agreed by the Parties pursuant to Section 2.08 (Field or Licensed Product Expansion).

Section 1.47Licensee Entitymeans, as applicable, (a) Licensee, (b) any of Licensee’s Affiliates or (c) any direct or indirect sublicensee or subcontractor of Licensee or any of Licensee’s Affiliates with respect to any Licensed Product.

Section 1.48Licensee In-License Agreement means any agreement pursuant to which any Licensee Entity has in-licensed or otherwise acquired the right to practice, or in-licenses or otherwise acquires the right to practice, any Know-How related to, or Patent Rights that Cover, any of the Licensed Products in the Field in the Territory or that would result in royalties or other amounts that would be payable to a Third Party based on the Development, Manufacture or Commercialization of Licensed Products in the Field in the Territory.

Section 1.49Licensee Know-How means all Know-How that is both (a) Controlled as of the Effective Date or during the Term by Licensee or any of its Affiliates and (b) necessary or reasonably useful for the Research, Development, Manufacture or Commercialization of the Licensed Compound or any Eravacycline Product; but excluding all Joint Inventions and Joint Know-How.  For the avoidance of doubt, Licensee Know-How shall include (x) any Know-How developed during clinical trials conducted by any Licensee Entity in the Field in the Territory, (y) all Licensee Product Data and (z) all Licensee Regulatory Documents.

Section 1.50Licensee Patent Rightsmeans all Patent Rights that both (a) are Controlled as of the Effective Date or during the Term by Licensee or any of its Affiliates, and (b) Cover the Licensed Compound or any Eravacycline Product or their respective Research, Development, Manufacture or Commercialization (or are necessary or reasonably useful for such Research, Development, Manufacture or Commercialization); but excluding all Joint Patent Rights.

7


 

Section 1.51Licensee Regulatory Documentsmeans Regulatory Documents Controlled by Licensee or any of its Affiliates at any time during the Term that (a) relate to the Licensed Compound or a Licensed Product in the Territory and (b) are necessary or reasonably useful for a Tetraphase Entity to prepare a Regulatory Filing with respect to any Eravacycline Product outside of the Territory.  For the avoidance of doubt, upon any expiration or termination of this Agreement (in its entirety or in one or more Jurisdictions), any Regulatory Documents that, at the time of such expiration or termination, constitute Licensee Regulatory Documents in the applicable Jurisdiction(s) shall remain Licensee Regulatory Documents after such expiration or termination.

Section 1.52Licensee Technologymeans Licensee Know-How and Licensee Patent Rights.

Section 1.53Manufacture or Manufacturing means, as applicable, all activities associated with the production, manufacture, process of formulating, processing, filling, finishing, packaging, labeling, shipping, importing or storage of pharmaceutical compounds or materials, including process development, process validation, stability testing, manufacturing scale-up, pre-clinical, clinical and commercial manufacture and analytical development, product characterization, quality assurance and quality control development, testing and release.

Section 1.54Medical Affairsmeans communications with key opinion leaders, medical education, symposia and other medical programs and communications.

Section 1.55Net Sales means the gross invoice price of a particular Licensed Product sold or otherwise transferred to a Third Party by any Licensee Entity for consideration, reduced by the following amounts to the extent such items are customary under industry practices and to the extent such amounts are, with respect to any deduction described in clause (a), (b), (d), (f) or (g), included in the gross invoiced sales price or documented in the invoices or otherwise properly documented by the relevant Licensee Entity, or, with respect to any deduction described in clause (c) or (e), documented in the invoices issued to the relevant Third Party or paid to the relevant Third Party following the initial date of invoicing and properly documented by the relevant Licensee Entity with such Third Party, in each case in accordance with Accounting Standards:

(a)normal and customary trade, quantity and prompt settlement discounts (including chargebacks and allowances) actually allowed and taken directly with respect to such unit of Licensed Product;

(b)tariffs, duties, excises, value added tax and other sales taxes imposed by any Governmental Authority upon and paid by the applicable Licensee Entity with respect to the sale, transportation, delivery, use, exportation, or importation of such Licensed Product (which does not include income, withholding or similar taxes);

(c)amounts repaid or credited by reason of rejection, return or recall of goods, or rebates;

8


 

(d)freight, postage, shipping and insurance expenses to the extent that such items are included in the gross amount invoiced;

(e)the portion of administrative fees paid during the relevant time period to group purchasing organizations or pharmaceutical benefit managers relating to such Licensed Product;

(f)any invoiced amounts that are not collected by such Party, its Affiliates or its or their sublicensees, including bad debts and uncollectable invoiced amounts actually written off in accordance with applicable Accounting Standards, provided that (i) any such amounts subsequently collected will be included in Net Sales and (ii) the amounts deducted under this subsection (f) shall not exceed [**] percent ([**]%) of gross sales of the relevant Licensed Product in the relevant calendar quarter; and

(g)any other similar and customary deductions that are consistent with applicable Accounting Standards; provided that the following provisions will also apply to the calculation of Net Sales hereunder:

(A)Any of the deductions listed above that involves a payment by the particular Licensee Entity will be taken as a deduction in the calendar quarter in which the payment is accrued by such entity.  For purposes of determining Net Sales, a Licensed Product will be deemed to be sold when invoiced and a “sale” will not include transfers or dispositions of such Licensed Product for pre-clinical or clinical purposes or compassionate use, and shall not include transfers or dispositions of a commercially reasonable quantity of samples of such Licensed Product, in each case, without charge.  A Licensee Entity’s transfer of any Licensed Product to an Affiliate of Licensee or to a sublicensee will not result in any Net Sales unless (i) the transferee is an end user or (ii) subject to the immediately preceding sentence, the next transfer to a Third Party that is not a sublicensee is included in Net Sales.

(B)In the case of pharmacy incentive programs, hospital performance incentive programs, chargebacks, disease management programs, similar programs or any discounts, in each case that are credited, discounted or reimbursed on a portfolio of product offerings, all such rebates, discounts and other forms of reimbursements will be allocated among all the products in such portfolio on the basis on which such rebates, discounts and other forms of reimbursements were actually granted or, if such basis cannot be determined, in accordance with the applicable Licensee Entity’s existing allocation method, in each case consistently applied across all such Licensee Entity’s products; provided that any such allocation will be done in accordance with applicable Law, including any price reporting Laws.

(C)Subject to the above, Net Sales will be calculated in accordance with the standard internal policies and procedures of Licensee, its Affiliates or its or their sublicensees; provided that such policies and procedures (1) are in accordance with applicable Accounting Standards and (2) do not favor other products being Developed, Manufactured or Commercialized by or on behalf of Licensee or its Affiliates or its or their sublicensees that are not Licensed Products.

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Section 1.56Patent Rights means (a) all patents and patent applications (including provisional applications) in any country or jurisdiction, and (b) any substitutions, divisions, continuations, continuations-in-part, reissues, renewals, registrations, confirmations, re-examinations, extensions, supplementary protection certificates and the like.

Section 1.57Phase 1 Clinical Trial means a clinical trial in humans which provides for the first introduction into humans of a pharmaceutical product, to generate information on product safety, tolerability, pharmacological activity or pharmacokinetics, as described in Federal Regulation 21 C.F.R. §312.21(a) and its foreign equivalents.

Section 1.58Phase 2 Clinical Trial means a clinical trial in humans of the safety, dose ranging and efficacy of a pharmaceutical product, as described in Federal Regulation 21 C.F.R. §312.21(b) and its foreign equivalents.

Section 1.59Phase 3 Clinical Trial means a controlled clinical trial, or a portion of a controlled clinical trial, in humans of the efficacy and safety of a pharmaceutical product, which study (in its entirety or portion, as applicable) is prospectively designed to demonstrate statistically whether such product is effective and safe for use in a manner sufficient to file a Drug Approval Application, as described in Federal Regulation 21 C.F.R. §312.21(c) and its foreign equivalents.  For the sake of clarity, with respect to what is commonly called a phase 2/3 trial, the Phase 3 Clinical Trial definition is met upon the first patient, first visit in the portion of such study that is prospectively designed to demonstrate statistically whether such pharmaceutical product is effective and safe for use in a manner sufficient to file an Drug Approval Application, as described in Federal Regulation 21 C.F.R. §312.21(c) and its foreign equivalents.

Section 1.60Product Trademark means any Trademark for use in connection with the Commercialization of any Licensed Product. “Product Trademark” specifically excludes the corporate names and logos of the Parties and their Affiliates.  “Product Trademark” includes each Tetraphase Trademark and each Licensee Trademark, as applicable.

Section 1.61Regulatory Approval means, with respect to a particular regulatory jurisdiction, any approval, product or establishment license, registration or authorization of any Governmental Authority necessary for the commercial sale of a pharmaceutical product in such regulatory jurisdiction.

Section 1.62Regulatory Authoritymeans, in a particular country or jurisdiction, any applicable Governmental Authority involved in granting Regulatory Approval in such country or jurisdiction, including (a) in the United States, the FDA and any other applicable Governmental Authority in the United States having jurisdiction over pharmaceutical products, (b) in Europe, the European Medicines Agency (“EMA”), (c) in mainland China, the CFDA and (d) any other applicable Governmental Authority in the Territory having jurisdiction over pharmaceutical products.

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Section 1.63Regulatory Documentsmeans all (a) applications (including all INDs, clinical trial applications and drug approval applications), registrations, licenses, authorizations and approvals (including Regulatory Approvals); (b) correspondence and reports submitted to or received from Regulatory Authorities (including minutes and official contact reports relating to any communications with any Regulatory Authority) and all supporting documents with respect thereto, including all regulatory drug lists, advertising and promotion documents, adverse event files and complaint files; and (c) preclinical, clinical and other data results, analyses, publications, and reports contained or referred to in any of the foregoing; in each case ((a), (b) and (c)) relating to the Licensed Compound or a Licensed Product. For the avoidance of doubt, Regulatory Documents include Regulatory Approvals and Regulatory Filings.

Section 1.64Regulatory Filings means all applications, filings, dossiers and the like submitted to a Regulatory Authority for the purpose of Developing, Manufacturing or Commercializing a product, including obtaining Regulatory Approval from that Regulatory Authority.  Regulatory Filings include all INDs, Drug Approval Applications and other Regulatory Approval applications.

Section 1.65Reimbursement Approvalmeans an approval, agreement, determination, or other decision by any applicable Regulatory Authority or other Governmental Authority that establishes prices at which a pharmaceutical product may be priced, or will be reimbursed by the Regulatory Authorities or other applicable Governmental Authorities, in a particular country or jurisdiction.

Section 1.66Research means all activities relating to discovery, evaluation or preclinical research (including identification of potential candidates, synthesis and testing by in vitro or in vivo assays).

Section 1.67Safety Data Exchange Agreement means that agreement between the Parties regarding receipt, investigation and reporting of product complaints, adverse events, product recalls, and any other information related to the safety of the Licensed Products as set forth in Section 10.03 (Adverse Drug Events).

Section 1.68Tax” means any present or future taxes, levies, imposts, duties, tariffs, charges, assessments or fees of any nature imposed by a Governmental Authority in the exercise of its taxing power (including interest, penalties and additions thereto), including value-added tax (“VAT”) and withholding tax.

Section 1.69Territorymeans any Jurisdiction; but excluding any Jurisdiction that is, at the relevant time, in the Terminated Territory.

Section 1.70Tetraphase Entity means, as applicable, (a) Tetraphase, (b) any of Tetraphase’s Affiliates or (c) any direct or indirect licensee, sublicensee or contractor of Tetraphase or any of Tetraphase’s Affiliates with respect to the Licensed Compound or any Licensed Product (other than any Licensee Entity).

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Section 1.71Tetraphase Know-How means all Know-How that is both (a) Controlled as of the Effective Date or during the Term by Tetraphase or any of its Affiliates and (b) necessary or reasonably useful for the Development or Commercialization of any Licensed Product in the Field in the Territory; but excluding all Joint Inventions and Joint Know-How.  For the avoidance of doubt, Tetraphase Know-How shall include (x) any Know-How developed during clinical trials relating to Licensed Product conducted by any Tetraphase Entity, to the extent such Know-How is Controlled by Tetraphase or any of its Affiliates, (y) all Tetraphase Product Data and (z) all Tetraphase Regulatory Documents.

Section 1.72Tetraphase Patent Rightsmeans all Patent Rights that both (a) are Controlled as of the Effective Date or during the Term by Tetraphase or any of its Affiliates in the Territory, and (b) Cover any Licensed Product, or its Development or Commercialization (or are necessary or reasonably useful for its Development or Commercialization), in the Field in the Territory; but excluding all Joint Patent Rights.  Tetraphase Patent Rights as of the Effective Date include those listed in Exhibit A.

Section 1.73Tetraphase Regulatory Documentsmeans Regulatory Documents Controlled by Tetraphase or any of its Affiliates as of the Effective Date or at any time during the Term that (a) relate to the Licensed Compound or a Licensed Product and (b) are necessary or reasonably useful for a Licensee Entity to prepare a Regulatory Filing with respect to the Licensed Product in the Field in the Territory; but excluding any Regulatory Filings submitted to a Regulatory Authority for the purpose of Manufacturing any product.

Section 1.74Tetraphase Technologymeans Tetraphase Know-How and Tetraphase Patent Rights.

Section 1.75Third Partymeans any person or entity other than the Parties and their Affiliates.

Section 1.76Total Indirect Costsmeans Third Party costs and expenses incurred to conduct multi-region clinical trials that are not directly allocable to a Party’s territory, such as fees for data management that are not specific to a territory or clinical site. 

Section 1.77TP-6076 means, as applicable, (a) (i) the compound identified on Schedule 1.77, or (ii) any metabolite, salt, ester, hydrate, solvate, isomer, enantiomer, free acid form, free base form, crystalline form, co-crystalline form, amorphous form, pro-drug (including ester pro-drug) form, racemate, polymorph, chelate, stereoisomer, tautomer or optically active form of any of the foregoing, or (b) any pharmaceutical product containing TP-6076, alone or with other APIs.

Section 1.78Trademark means any trademark, trade name, service mark, service name, brand, domain name, trade dress, logo, slogan or other indicia of origin or ownership, including the goodwill and activities associated with each of the foregoing.

Section 1.79U.S.or United Statesmeans the United States of America.

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Section 1.80Valid Claim means (a) any claim of any Patent Right that has issued, is unexpired and has not been rejected, revoked or held unenforceable or invalid by a final, non-appealable (or unappealed within the time allowable for appeal) decision of a court or other Governmental Authority of competent jurisdiction or (b) any claim of any patent application that has (i) been pending for five (5) years or less from the date of issuance of the first substantive patent office action considering the patentability of such claim by the applicable patent office in the applicable country and (ii) not been cancelled, withdrawn, abandoned or finally rejected by an administrative agency action from which no appeal can be taken; provided that if after the earliest possible date for requesting examination in such country the patentee fails to request examination by such patent office within sixty (60) days after the licensed Party requests the patentee to do so, such five (5) year period shall run from the date of the licensed Party’s request that the patentee request examination.

Additional Defined Terms

Section

Arbitration Request

Section 15.01(a)

Agreement

Preamble

Alliance Manager

Section 3.12

Acquired Party

Section 16.02

Acquirer

Section 16.02

Acquiring Party

Section 2.06(b)

Acquisition

Section 16.02

Bankrupt Party

Section 14.05(a)

Breaching Party

Section 14.03

Breach Notice

Section 14.03

CMC

Section 2.04(b)

Committee

Section 3.01(a)

Confidentiality Agreement

Section 1.12

Effective Date

Preamble

EMA

Section 1.62

Event of Bankruptcy

Section 14.05(a)

Exclusive Negotiation Period

Section 2.09

Executive Officer

Section 3.08

Existing Patents

Section 11.03(a)

FCPA

Section 11.06(b)(i)

Government Official

Section 11.06(a)(A)

Harvard

Section 1.33

Harvard Indemnitees

Section 13.05

Harvard Patent Rights

Section 9.04(a)(i)

ICC

Section 15.01(c)

ICH

In-License Agreement

Section 10.02

Section 11.03(c)

Indemnified Party

Section 13.03

Indemnifying Party

Section 13.03

Infringement Activity

Section 9.05(a)

JCC

Section 3.01(a)

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Additional Defined Terms

Section

JDC

Section 3.01(a)

JSC

Section 3.01(a)

Licensee

Preamble

Licensee Indemnitees

Section 13.01

Licensee Product Data

Section 2.04(b)

Licensee Trademarks

Section 6.06(b)

Losses

Section 13.01

Non-Breaching Party

Section 14.03

Other Covered Party

Section 11.06(a)(B)

Other Party

Section 14.05(a)

Party or Parties

Preamble

PRC

Section 9.09

Recipient

Section 12.02

Representatives

Section 12.01

Royalty Term

Section 8.04(b)

Rules

Section 15.01

Severed Clause

Section 16.05

Subcommittee

Section 3.01(b)

Supply Agreements

Section 7.02

Term

Section 14.01

Terminated Territory

Section 14.07(b)

Tetraphase

Preamble

Tetraphase Indemnitees

Section 13.02

Tetraphase Product Data

Section 2.04(b)

Tetraphase Trademarks

Section 6.06(a)

TP-6076 Data Package

Section 2.09

TP-6076 Negotiation Notice

Section 2.09

VAT

Section 1.68

Section 1.81Interpretation.  (a) Whenever any provision of this Agreement uses the word “including,” “include,” “includes,” or “e.g.,” such word shall be deemed to mean “including without limitation” and “including but not limited to”; (b) “herein,” “hereby,” “hereunder,” “hereof” and other equivalent words shall refer to this Agreement in its entirety and not solely to the particular portion of this Agreement in which any such word is used; (c) a capitalized term not defined herein but reflecting a different part of speech from that of a capitalized term which is defined herein shall be interpreted in a correlative manner; (d) wherever used herein, any pronoun or pronouns shall be deemed to include both the singular and plural and to cover all genders; (e) the recitals set forth at the start of this Agreement, along with the schedules and the exhibits to this Agreement, and the terms and conditions incorporated in such recitals and schedules and exhibits, shall be deemed integral parts of this Agreement and all references in this Agreement to this Agreement shall encompass such recitals and schedules and exhibits and the terms and conditions incorporated in such recitals and schedules and exhibits; provided that, in the event of any conflict between the terms and conditions of this Agreement and any terms and conditions set forth in the recitals, schedules or

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exhibits, the terms of this Agreement shall control; (f) in the event of any conflict between the terms and conditions of this Agreement and any terms and conditions that may be set forth on any order, invoice, verbal agreement or otherwise, the terms and conditions of this Agreement shall govern; (g) this Agreement shall be construed as if both Parties drafted it jointly, and shall not be construed against either Party as principal drafter; (h) unless otherwise provided, all references to Sections, Articles and Schedules in this Agreement are to Sections, Articles and Schedules of and to this Agreement; (i) any reference to any Law shall mean such Law as in effect as of the relevant time, including all rules and regulations thereunder and any successor Law in effect as of the relevant time, and including the then-current amendments thereto; (j) wherever used, the word “shall” and the word “will” are each understood to be imperative or mandatory in nature and are interchangeable with one another; (k) references to a particular person or entity include such person’s or entity’s successors and assigns to the extent not prohibited by this Agreement; (l) references to Tetraphase’s knowledge shall be taken to refer to the knowledge of Tetraphase’s senior management team as of the Effective Date having made no particular inquiry; (m) except where the context otherwise requires, the word “or” is used in the inclusive sense that is typically associated with the phrase “and/or”; (n) the captions and table of contents used herein are inserted for convenience of reference only and shall not be construed to create obligations, benefits or limitations; (o) the word “year” means any consecutive twelve (12) month period, unless otherwise specified; (p) reference to an “indication” means, with respect to a product, any use to which such product is intended to be put for the treatment, prevention, mitigation, cure or diagnosis of a recognized disease or condition, or of a manifestation of a recognized disease or condition, or for the relief of symptoms associated with a recognized disease or condition, in each case for any size patient population, which, if approved in the U.S., would be reflected in the “Indications and Usage” section of labeling pursuant to 21 C.F.R. §201.57(c)(2) or, to the extent applicable, any comparable labeling section outside the U.S., including any such use that is the subject to a clinical trial; (q) references to the “Field” mean any or all of the applicable indications described in the definition of “Field”, in any size patient population; and (r) references to cAIA mean the treatment of cAIA in any size patient population.    

 

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ARTICLE II.

LICENSES; EXCLUSIVITY

Section 2.01Grants of Licenses.  

(a)Subject to the terms and conditions of this Agreement (including Section 4.05(z)), Tetraphase hereby grants to Licensee an exclusive (including with regard to Tetraphase and its Affiliates), royalty-bearing, non-sublicensable (except in accordance with Section 2.02 (Rights to Sublicense or Subcontract)), non-transferrable (except in accordance with Section 16.01 (Assignment)) license under the Tetraphase Technology and Tetraphase’s interest in the Joint Technology to Develop and Commercialize Licensed Products in the Field in the Territory.  

(b)Subject to the terms and conditions of this Agreement, to the extent permitted by applicable Law, Tetraphase hereby grants to Licensee an exclusive (including with regard to Tetraphase and its Affiliates), non-sublicensable (except in accordance with Section 2.02 (Rights to Sublicense or Subcontract)), non-transferrable (except in accordance with Section 16.01 (Assignment)) right of reference under the Tetraphase Regulatory Documents to Develop and Commercialize Licensed Products in the Field in the Territory.  

(c)Subject to the terms and conditions of this Agreement, Licensee hereby grants to Tetraphase, (i) an exclusive (including with regard to Licensee and its Affiliates), royalty-free (subject to clause (ii)), fully-paid (subject to clause (ii)), freely transferrable, freely sublicensable, perpetual, irrevocable license under Licensee Technology and Licensee’s interest in Joint Technology to Research, Develop, Manufacture and Commercialize the Licensed Compound, Eravacycline Materials and Eravacycline Products outside the Territory, and (ii) from and after any early termination of this Agreement (in one or more Jurisdictions or in its entirety), an exclusive (including with regard to Licensee and its Affiliates), freely transferrable, freely sublicensable, perpetual, irrevocable license under Licensee Technology and Licensee’s interest in Joint Technology to Research, Develop, Manufacture and Commercialize the Licensed Compound, Eravacycline Materials and Eravacycline Products (other than any Licensed Product and Jurisdiction with respect to which Licensee retains a perpetual license pursuant to Section 8.04(b)) in the Terminated Territory; provided that (A) if this Agreement is terminated by Licensee pursuant to Section 14.03 (Termination for Breach), Tetraphase shall pay Licensee a royalty of [**] percent ([**]%) of Net Sales of Licensed Products in the Terminated Territory, mutatis mutandis, with the provisions of Section 8.04(b) (second sentence only), Section 8.04(c), Section 8.04(d), Section 8.05 (Royalty Payments and Reports), Section 8.07 (Accounting), Section 8.08 (Currency Conversion), Section 8.09 (Methods of Payment), Section 8.10 (Taxes) and Section 8.11 (Late Payments) applying with respect thereto, mutatis mutandis; provided that (solely for the purposes of such royalty payment, mutatis mutandis, with such provisions) Royalty Term shall mean that period commencing on the effective date of termination and ending on the later of (i) expiration of the last-to-expire Valid Claim that is a composition of matter claim (for clarity, including a formulation claim) in the Licensee Patent Rights or Joint Patent Rights that Covers such Licensed Product in the Field in such Jurisdiction in the Terminated Territory, (ii) expiration of marketing or regulatory exclusivity with respect to such Licensed Product in such Jurisdiction in the Terminated Territory, (iii) ten (10) years from the date of First Commercial Sale of the applicable Licensed

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Product in the Field in the applicable Jurisdiction in the Terminated Territory or (iv) five (5) years from the effective date of termination and (B) Tetraphase may, upon written notice to Licensee, terminate its license under this Section 2.01(c)(ii) and, thereby, terminate such royalty obligation.  

(d)Subject to the terms and conditions of this Agreement (including Section 2.01(a), Section 2.01(b), Section 2.01(c), Section 2.01(e), Section 2.01(f), Section 2.06 (Exclusivity) and Section 8.04 (Royalties)), and to the extent not already granted herein, each Party hereby grants, and shall cause its Affiliates to grant, to the other Party a worldwide, non-exclusive, royalty-free, fully-paid, freely sublicensable, freely transferrable right and license to exploit the Joint Technology in any manner without compensating or accounting to the other Party or its Affiliates.

(e)Subject to the terms and conditions of this Agreement, to the extent permitted by applicable Law, Licensee hereby grants to Tetraphase an exclusive (including with regard to Licensee and its Affiliates), non-sublicensable (except in accordance with Section 2.02 (Rights to Sublicense or Subcontract)), non-transferrable (except in accordance with Section 16.01 (Assignment)) right of reference under the Licensee Regulatory Documents to Develop and Commercialize Licensed Products outside the Territory.  

(f)During the Term, Tetraphase shall not, and shall not grant to any of its Affiliates or any Third Party a license under the Tetraphase Technology and Tetraphase’s interest in the Joint Technology to, Develop or Commercialize any Eravacycline Product for any human use in the Territory.

Section 2.02Rights to Sublicense or Subcontract. Except as set forth in Section 2.01(d), Licensee may not sublicense any of the rights granted to Licensee by Tetraphase hereunder, or subcontract any of Licensee’s obligations hereunder, except with (a) Tetraphase’s prior written consent, which consent may not be unreasonably withheld, delayed or conditioned (provided that Tetraphase’s prior written consent shall not be required with respect to any such sublicense to an Affiliate of Licensee), and (b) to the extent required under the Harvard Agreement, Harvard’s prior written consent.  Whether or not Licensee is required to obtain Tetraphase’s consent to sublicense any rights hereunder, Licensee shall remain responsible for the acts or omissions of any of its Affiliates or sublicensees with respect to this Agreement.

Section 2.03No Other Rights and Retained Rights.  Nothing in this Agreement shall be interpreted to grant either Party any rights under any Patent Rights or Know-How owned by or licensed to the other Party that are not expressly granted herein, whether by implication, estoppel or otherwise.  Any rights not expressly granted to a Party by the other Party under this Agreement are hereby retained by such other Party.

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Section 2.04Knowledge Transfer.

(a)Within a reasonable time following the Effective Date (but, with respect to the Know-How identified in Schedule 2.04, no later than [**] days following the Effective Date, and, with respect to all other applicable Know-How, [**] days following the Effective Date), (i) Tetraphase shall provide to Licensee information describing the Development program for the Licensed Compound and Licensed Products, including all non-clinical and clinical data and other Know-How that are identified in Schedule 2.04 or, in Tetraphase’s reasonable determination, are necessary or reasonably useful for the Development or Commercialization of the Licensed Products in the Field in the Territory and (ii) Tetraphase shall use commercially reasonable efforts to make its qualified personnel reasonably available to Licensee, by telephone or other remote conferencing system or at Tetraphase’s place of business and upon reasonable prior notice, for the purpose of discussing such information under this Section 2.04 (Knowledge Transfer).  Licensee shall reimburse Tetraphase for any reasonable out-of-pocket costs incurred by Tetraphase in fulfilling its obligations pursuant to clause (ii) of the immediately preceding sentence, and shall pay Tetraphase, at the rates set forth in Exhibit D, for each hour that any of Tetraphase’s personnel spend answering questions or providing instruction pursuant to clause (ii) of the immediately preceding sentence, in each case within [**] days after the receipt of an invoice therefor; provided that the first [**] FTE hours of such support, in aggregate, shall be at no expense to Licensee.  

(b)Subject to Section 4.05(z), throughout the Term, Tetraphase shall make available to Licensee copies of Tetraphase Know-How, including research data and reports, regulatory materials and correspondence (including INDs and Drug Approval Applications), clinical and preclinical data, and chemistry, manufacturing and controls (“CMC”) data, (collectively, the “Tetraphase Product Data”) to the extent such Tetraphase Product Data is necessary or reasonably useful for any Licensee Entity to Develop or Commercialize any Licensed Product in the Field in the Territory.  Throughout the Term, Licensee shall make available to Tetraphase copies of Licensee Know-How, including research data and reports, regulatory materials and correspondence (including INDs and Drug Approval Applications), clinical and preclinical data, and CMC data, (collectively, the “Licensee Product Data”) to the extent such Licensee Product Data is necessary or reasonably useful for any Tetraphase Entity to Develop or Commercialize the Licensed Compound or any Eravacycline Product outside of the Territory or to Research or Manufacture the Licensed Compound or any Eravacycline Product.

(c)(i) Subject to Section 4.05(z), Licensee shall be entitled at no cost to access, use, and reference the Tetraphase Regulatory Documents and Tetraphase Product Data for the Development and Commercialization of the Licensed Products in the Field in the Territory in accordance with this Agreement.  (ii) The Tetraphase Entities shall be entitled at no cost to access, use and reference the Licensee Regulatory Documents and Licensee Product Data for the Development or Commercialization of the Licensed Compound and Eravacycline Products outside of the Territory and for the Research or Manufacture of the Licensed Compound and Eravacycline Products.

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Section 2.05In-License Agreements.  Licensee acknowledges and agrees that certain of the rights, licenses and sublicenses granted by Tetraphase to Licensee in this Agreement (including any sublicense rights) are subject to the terms of the In-License Agreements and the rights granted to the Third Party counterparties thereunder, the scope of the licenses granted to Tetraphase or any applicable Affiliate thereunder and the rights retained by such Third Party counterparties and any other Third Parties (including Governmental Authorities) set forth therein.  Licensee shall, and shall ensure that each Licensee Entity shall, perform and take such actions to allow Tetraphase and its Affiliates to comply with their obligations under each In-License Agreement, only to the extent applicable to Licensee’s rights or obligations under this Agreement, including Article 10 and Sections 4.2.3, 5.1 (first sentence only and solely with respect to the Development and Commercialization of Licensed Products in the Field in the Territory), 5.3, 6.3, 6.5, 7.1.1, 7.3, 9.1, and 12.2 of the Harvard Agreement as in effect on the Effective Date.  Without limiting the foregoing, each Licensee Entity shall prepare and deliver to Tetraphase, or assist Tetraphase in preparing, any additional reports required under any In-License Agreement, in each case reasonably sufficiently in advance to enable Tetraphase and its Affiliates to comply with their obligations thereunder.  Each Licensee Entity shall comply with each In-License Agreement.  To the extent there is a conflict between the terms of any In-License Agreement and any rights granted to Licensee hereunder, the terms of the applicable In-License Agreement(s) shall control.    Any breach by any Licensee Entity of any provision of any In-License Agreement applicable to any of them pursuant to this Section 2.05 (In-License Agreements) shall be deemed a material breach of this Agreement. To the extent permitted under the relevant In-License Agreement, Tetraphase shall provide Licensee with a copy of (a) any In-License Agreement executed after the Effective Date, promptly after Tetraphase identifies that such In-License Agreement is relevant to Licensee’s rights and obligations under this Agreement, and (b) any amendment to any In-License Agreement previously provided to Licensee, promptly after such amendment is executed.  

Section 2.06Exclusivity.

(a)General Covenants.  

(i)During the Term and for [**] years after termination of this Agreement by Licensee pursuant to Section 14.03 (Termination for Breach) or Section 14.05 (Termination for Bankruptcy and Rights in Bankruptcy), neither Tetraphase nor any of its Affiliates shall, itself or with or through any Third Party, without the prior written consent of Licensee, engage in any Development or Commercialization of any Competing Product in the Territory.  For the avoidance of doubt, and without limiting the foregoing, during the Term, neither Tetraphase nor any of its Affiliates shall, itself or with or through any Third Party, without the prior written consent of Licensee, engage in any Development or Commercialization of the Licensed Compound or of any Eravacycline Product in the Territory (including advertising or promotional activities directed primarily to customers or other buyers or users located in the Territory or accepting orders from or selling in the Territory).

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(ii)During the Term and for [**] years after termination of this Agreement by Tetraphase pursuant to Section 14.02 (Termination for Patent Right Challenge), Section 14.03 (Termination for Breach) or Section 14.05 (Termination for Bankruptcy and Rights in Bankruptcy), or for [**] after any other termination of this Agreement, neither Licensee nor any of its Affiliates shall, itself or with or through any Third Party, without the prior written consent of Tetraphase, engage in any Research, Development, Manufacture or Commercialization of any Competing Product in any country of the world, except with respect to the Development or Commercialization of any Licensed Product in the Field in the Territory in accordance with this Agreement.  For the avoidance of doubt, and without limiting the foregoing, during the Term and for [**] years after termination of this Agreement, neither Licensee nor any of its Affiliates shall, itself or with or through any Third Party, without the prior written consent of Tetraphase, engage in any Development or Commercialization of the Licensed Compound or of any Licensed Product outside of the Field or outside of the Territory (including advertising or promotional activities directed primarily to customers or other buyers or users outside of the Field or located outside of the Territory or accepting orders from or selling outside of the Territory) or in any Research or Manufacture of the Licensed Compound or of any Eravacycline Product.

(b)If, during the term of the exclusivity covenant in Section 2.06(a), a Party or any of its Affiliates acquires or is acquired by a Third Party (whether such acquisition occurs by way of a purchase of assets, merger, consolidation, change of control or otherwise) (such Party, the “Acquiring Party” for purposes of this Section 2.06) that is, at the time of such acquisition, Researching, Developing, Manufacturing or Commercializing a Competing Product in a manner that, if performed by the Acquiring Party or any of its Affiliates, would violate Section 2.06(a), then the Acquiring Party or its applicable Affiliate will, no later than [**] days following the date of consummation of the relevant acquisition, notify the other Party in writing that the Acquiring Party or such Affiliate will:

(i)divest, whether by license or otherwise, its interest in the Competing Product to a Third Party, to the extent necessary to be in compliance with Section 2.06(a), with no rights in such Competing Product retained by the Acquiring Party or any of its Affiliates; or

(ii)terminate the Research, Development, Manufacture and Commercialization of the Competing Product, to the extent necessary to be in compliance with Section 2.06(a).

(c)If the Acquiring Party or any of its Affiliates notifies the other Party in writing that it or its relevant Affiliate intends to divest such Competing Product or terminate the Research, Development, Manufacture and Commercialization of the Competing Product as provided in Section 2.06(b), then the acquiring Party or its relevant Affiliate will effect the consummation of such divestiture within [**] months or effect such termination within [**] months after the consummation of the relevant acquisition, subject to compliance with applicable Law, and will confirm to the other Party in writing when such divestiture or termination has been completed.  The acquiring Party will keep the other Party reasonably informed of its and its Affiliates’ efforts and progress in effecting such divestiture or termination until it is completed.  Until such divestiture or termination occurs, the Acquiring Party shall keep its and its Affiliates’ activities with respect to such Competing Product separate from their activities with respect to the Licensed Products.

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(d)Each Licensee Entity will use commercially reasonable efforts to monitor and prevent exports of Licensed Products from the Territory for Development or Commercialization outside of the Territory using methods commonly used in the industry for such purpose, and shall promptly inform Tetraphase of any such exports from the Territory, and the actions taken to prevent such exports.  Licensee shall take, and shall ensure that each Licensee Entity takes, reasonable actions requested in writing by Tetraphase that are consistent with Law to prevent such exports.  If Licensee or any of its Affiliates or, to Licensee’s or any of its Affiliates’ knowledge, any other Licensee Entity receives a request or order to (i) Research or Manufacture any Licensed Compound or Eravacycline Product or (ii) Develop or Commercialize any Licensed Compound or Eravacycline Product outside of the Territory, Licensee shall immediately notify Tetraphase thereof, shall not accept such request or order, and shall direct the relevant individual or entity to Tetraphase.  Tetraphase and its Affiliates will use commercially reasonable efforts to monitor and prevent exports of Licensed Products, from countries outside the Territory in which any of Tetraphase or its Affiliates, at the relevant time, directly and actively Developing or Commercializing any Eravacycline Product, for Development or Commercialization in the Territory, using methods commonly used in the industry for such purpose, and shall promptly inform Licensee of any such exports from any such country outside the Territory, and the actions taken to prevent such exports.  If Tetraphase or, to Tetraphase’s knowledge, any Tetraphase Entity receives a request or order to Develop or Commercialize any Licensed Product in the Field in the Territory, Tetraphase shall immediately notify Licensee thereof, shall not accept such request or order, and shall direct the relevant individual or entity to Licensee.  

(e)Each Party agrees that the duration and scope of the covenants set forth in this Section 2.06 (Exclusivity) are reasonable.  In the event that the arbitrator or any court determines that the duration or scope of any such provision is unreasonable and that any such provision is to that extent unenforceable, the Parties agree that such provision shall remain in full force and effect for the greatest time period and to the greatest scope that would not render it unenforceable.  The Parties intend that the provisions of this Section 2.06 (Exclusivity) shall be deemed to be a series of separate covenants, one for each and every product, indication and jurisdiction where such provision is intended to be effective.

Section 2.07Diligence. Licensee shall use Commercially Reasonable Efforts to Develop and Commercialize Licensed Products in the Field in the Territory in accordance with this Agreement (including Section 4.01 (Development in the Field in the Territory) and Section 6.04 (Commercialization Efforts)).  

Section 2.08Field or Licensed Product Expansion.  Upon the written request of either Party, the Parties shall promptly discuss in good faith whether to expand the Field to include one or more additional indications in humans or to expand the definition of Licensed Product to include one or more additional formulations; provided that any such expansion pursuant to this Section 2.08 (Field or Licensed Product Expansion) shall be by mutual written agreement; provided, further, that the Parties hereby agree that such expansion of the Field or the definition of Licensed Product shall require no additional payment by Licensee; provided, for clarity, that (a) consistent with the definition of Net Sales set forth herein, any Net Sales of any additional Licensed Product or made for use in any indication added to the Field shall be included in the Net Sales used to calculate the achievement of the commercial milestones set forth in Section 8.03 (Sales Milestone Payments) and royalty payments owed pursuant to

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Section 8.04 (Royalties) and (b) solely for purposes of any milestone events set forth in Section 8.02 (Development Milestone Payment) that have not been achieved as of the date on which the definition of “Field” is expanded pursuant to this Section 2.08 (Field or Licensed Product Expansion), all uses of the word “Field” in Section 8.02 (Development Milestone Payment) shall include all of the additional indications included in the expanded definition of “Field.”

Section 2.09ROFN.  Within [**] days after Tetraphase receives the final clinical study report for its first multiple ascending dose Phase 1 Clinical Trial of TP-6076, Tetraphase shall provide to Licensee (a) a true and complete copy of such clinical study report, (b) all material pre-clinical data with respect to TP-6076 in Tetraphase’s possession and Control at such time, and (c) pursuant to, and under the terms of, a material transfer agreement to be mutually agreed by the Parties, the TP-6076 needed for Licensee to conduct China-strain minimum inhibitory concentration (MIC) testing of TP-6076 to support an IND filing in PRC for TP-6076, which testing shall be at Licensee’s sole cost and expense (“TP-6076 Data Package”).  Within [**] days after receipt of the complete TP-6076 Data Package, Licensee may provide written notice to Tetraphase of Licensee’s interest in negotiating a license to Develop and Commercialize TP-6076 in the Territory (the “TP-6076 Negotiation Notice”); provided that Tetraphase shall respond to Licensee’s inquiries with respect to TP-6076 (including with regard to the contents of the TP-6076 Data Package) during such [**] day exercise period, to the extent Tetraphase determines that such inquiries are reasonable.  If Licensee provides such notice, the Parties shall enter into good faith negotiations with respect to such license, on such terms as may be mutually agreeable, which terms shall include Licensee sharing in the costs for any Tetraphase Entity’s Phase 2 Clinical Trials of TP-6076 that supports registration in the Territory. If (a) Licensee does not provide the TP-6076 Negotiation Notice to Tetraphase within such [**] period or (b) Licensee provides the TP-6076 Negotiation Notice to Tetraphase during such [**] day period but the Parties are unable to reach mutual agreement and execute a definitive agreement with respect to the Development and Commercialization of TP-6076 in the Territory within [**] days from the date of the TP-6076 Negotiation Notice (or such extended period as may be approved in writing by the Parties) (Exclusive Negotiation Period), Licensee shall have no rights with respect to TP-6076.  During the Exclusive Negotiation Period, Tetraphase shall neither license or otherwise grant to any Third Party, nor engage in any negotiations or other discussions with any Third Party regarding any agreement to license or otherwise grant to any Third Party, any rights to Develop and Commercialize TP-6076 in the Territory.

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ARTICLE III.

GOVERNANCE

Section 3.01General.

(a)The Parties shall establish (i) a Joint Steering Committee (“JSC”) to oversee and coordinate the overall conduct of the Development and Commercialization of the Licensed Products in the Field in the Territory and (ii) a Joint Development Committee (“JDC”) to oversee and coordinate the Development of the Licensed Products in the Field in the Territory.  The JSC may, at the reasonable request of either Party, establish a Joint Commercialization Committee (“JCC”) to oversee and coordinate the Commercialization of the Licensed Products in the Field in the Territory; provided that prior to any such establishment, any matters that would fall within the purview of the JCC pursuant to this ARTICLE III (Governance) shall instead fall within the purview of the JSC.  The JSC, the JDC and the JCC shall each be referred to as a “Committee”.  Each Committee shall have decision-making authority with respect to the matters within its purview to the extent expressly provided herein.

(b)From time to time, each Committee may establish one or more subcommittees to oversee particular projects or activities, as it deems necessary or advisable (each, a “Subcommittee”).  Each Subcommittee shall consist of such number of members as the applicable Committee determines is appropriate from time to time.  Such members shall be individuals with expertise and responsibilities in the relevant areas.  Such Subcommittees shall operate under the same principles as are set forth in this ARTICLE III (Governance) for the Committee forming such Subcommittee.

(c)At Tetraphase’s written request, the Parties shall renegotiate this ARTICLE III (Governance) in good faith to include in the decision-making processes one or more Tetraphase Entities (other than Tetraphase) which are Developing or Commercializing the Licensed Compound or any Eravacycline Product outside of the Territory or Researching or Manufacturing the Licensed Compound or any Eravacycline Product; provided that such renegotiation shall not result in any alternative decision-making processes that would diminish Licensee’s rights in any manner that may adversely impact Licensee’s prospects with respect to the Development or Commercialization of any Licensed Product in any Jurisdiction in the Territory.

Section 3.02Joint Steering Committee.

(a)Within [**] days following the Effective Date, the Parties shall establish the JSC.  The JSC shall:

(i)manage the strategic direction of the Development and Commercialization of the Licensed Products in the Field in the Territory;

(ii)review and monitor the progress of the Development and Commercialization of the Licensed Products in the Field in the Territory and serve as a forum for exchanging information regarding the conduct of the Development and Commercialization of the Licensed Products in the Field in the Territory;

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(iii)provide any information to Tetraphase that is necessary or reasonably useful for the Development or Commercialization of Eravacycline Products outside of the Territory;

(iv)oversee and coordinate all of the matters within the responsibilities of the Committees hereunder;

(v)serve as a forum for dispute resolution in accordance with Section 3.07 (Committee Decision Making) with respect to matters that are not resolved at the JDC and JCC; and

(vi)perform such other duties as are specifically assigned to the JSC under this Agreement.

Section 3.03Joint Development Committee.

(a)Within [**] days following the Effective Date, the Parties shall establish the JDC.  Upon the establishment of the JSC and the JDC, (i) each Party shall appoint the same [**] individuals to serve as such Party’s representatives on the JSC and the JDC, and (ii) the JSC and JDC shall hold joint meetings, in each case ((i) or (ii)) until such time as either Party, in its sole discretion, determines it no longer desires the JSC and JDC to be so aligned.  The JDC shall:

(i)review and approve the Development Plan and any proposed updates or amendments to the Development Plan, and propose revisions to the Development Plan in accordance with Section 4.01 (Development in the Field in the Territory);

(ii)provide a forum for the Parties to share information with respect to the Development of the Licensed Products in the Field in the Territory, including reviewing and commenting on updates on such Development;

(iii)oversee, review, coordinate and provide strategic guidance to the Parties on the Development of the Licensed Products in the Field in the Territory;

(iv)subject to and within the parameters of the Development Plan (A) oversee the implementation of the Development Plan (including evaluation of clinical trial protocols and review of the conduct of clinical trials conducted pursuant to the Development Plan); and (B) oversee and approve the overall strategy and positioning of all material Regulatory Filings for Licensed Products in the Field in the Territory; and

(v)perform such other duties as are specifically assigned to the JDC under this Agreement.

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Section 3.04Joint Commercialization Committee.

(a)At least [**] months prior to the anticipated filing of the first Drug Approval Application for a Licensed Product in the Field in the Territory, the JSC shall establish the JCC.  The JCC shall:

(i)review and discuss the Launch Plan;  

(ii)discuss implementation of the Launch Plan;

(iii)review and discuss the initial Commercialization Plan and, each year thereafter, review and approve the updated Commercialization Plan;

(iv)discuss implementation of the Commercialization Plan;

(v)review and discuss any branding and/or co-branding matters with respect to Licensed Products in the Field in the Territory; and

(vi)perform such other duties as are specifically assigned to the JCC under this Agreement.

Section 3.05Membership.  Each Committee shall be composed of [**] representatives from each of Tetraphase and Licensee, each of which representatives shall be of the seniority and experience appropriate for service on the applicable Committee in light of the functions, responsibilities and authority of such Committee and the status of activities within the scope of the authority and responsibility of such Committee.  Any representative from either Party can represent such Party on more than one Committee.  Each Party may replace any of its representatives on any Committee at any time with prior written notice to the other Party; provided that such replacement meets the standard described in the preceding sentence.  Each Party’s representatives and any replacement of a representative shall be bound by obligations of confidentiality and non-use applicable to the other Party’s Confidential Information that are at least as stringent as those set forth in ARTICLE XII (Confidentiality).  Each Committee shall appoint a chairperson from among its members, with the first chairperson of each of the JSC and JDC being a representative of [**] and the first chairperson of the JCC being a representative of [**].  Each chairperson (whether initially appointed or any successor therefor) shall serve a term of one (1) year, at which time, the applicable Committee shall select a successor chairperson who is a representative of the Party other than the Party represented by the outgoing chairperson (e.g., the second chairperson of each of the JSC and JDC shall be a representative of [**], and the second chairperson of the JCC shall be a representative of [**]; the third chairperson of each of the JSC and JDC shall be a representative of [**] and the third chairperson of the JCC shall be a representative of [**]).  Within [**] days following each Committee meeting, the chairperson of the applicable Committee shall circulate to all Committee members a draft of the minutes of such meeting.  The Committee shall then approve, by mutual agreement, such minutes within [**] days following circulation.  No chairperson of any Committee shall have any greater authority than any other representative of such Committee.

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Section 3.06Meetings.  

(a)Each Committee shall hold an initial meeting within [**] days after its formation or as otherwise agreed by the Parties.  Thereafter, each Committee shall meet at least [**] following such Committee’s formation, unless the respective Committee members otherwise agree.  All Committee meetings may be conducted either by teleconference or, solely if agreed by the Parties, in person.

(b)Unless otherwise agreed by the Parties, the location at which in-person meetings for each Committee shall be held at the offices of Tetraphase, unless Licensee has offices in the United States, in which case, such meetings shall alternate between the offices of Tetraphase and the United States offices of Licensee.  A reasonable number of other representatives of a Party, including, with respect to Tetraphase, any representative of any Tetraphase Entity that is Developing or Commercializing the Licensed Compound or any Eravacycline Product outside of the Territory or Researching or Manufacturing the Licensed Compound or any Licensed Product, may attend any Committee meeting as non-voting observers; provided that such additional representatives shall be bound by obligations of confidentiality and non-use applicable to the other Party’s Confidential Information that are at least as stringent as those set forth in ARTICLE XII (Confidentiality).  Each Party shall be responsible for all of its own personnel and travel costs and expenses relating to participation in Committee meetings.

Section 3.07Committee Decision Making.  All decisions of a Committee shall be made by unanimous vote, with each Party’s representatives collectively having one (1) vote, and shall be set forth in minutes approved by both Parties.  Upon [**] Business Days prior written notice, either Party may convene a special meeting of a Committee for the purpose of resolving any failure to reach agreement on a matter within the scope of the authority and responsibility of such Committee.  If the JDC or JCC is unable to reach agreement on any matter within [**] Business Days after the matter is referred to it or first considered by it, such matter shall be referred to the JSC for resolution.  If the JSC is unable to reach agreement on any matter within [**] Business Days after the matter is referred to it or first considered by it, such matter shall be referred to the Executive Officers for resolution in accordance with Section 3.08 (Executive Officers; Disputes).

Section 3.08Executive Officers; Disputes.  Each Party shall ensure that an executive officer is designated for such Party at all times during the Term for dispute resolution purposes (each such individual, such Party’s “Executive Officer”), and shall promptly notify the other Party of its initial, or any change in its, Executive Officer.  Unless otherwise set forth in this Agreement, in the event of a dispute arising under this Agreement between the Parties, the Parties shall refer such dispute to the Executive Officers, who shall attempt in good faith to resolve such dispute.

Section 3.09Final Decision-Making Authority.  If the Parties are unable to resolve a given dispute within the purview of a Committee within [**] Business Days after referring such dispute to the Executive Officers pursuant to Section 3.08 (Executive Officers; Disputes), then, subject to Section 3.10 (Limitations on Decision-Making):

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(a)the Executive Officer of Tetraphase shall have the deciding vote on any matter that has any material adverse impact on the Development, Regulatory Approval process or Commercialization for any Eravacycline Product outside the Territory, including as a result of a material adverse impact on (i) the Research, Development or Commercialization of the Licensed Compound or any Eravacycline Product in any way outside the Territory or the Research or Manufacture of the Licensed Compound or any Eravacycline Product, (ii) the scope, validity or enforceability of any Tetraphase Technology or (iii) in Tetraphase’s reasonable opinion, any In-License Agreement; and

(b)the Executive Officer of Licensee shall have the deciding vote on any matter solely related to the Development or Commercialization of Licensed Products in the Field in the Territory; provided that such matter does not fall under Tetraphase’s final decision-making authority pursuant to Section 3.09(a).

Any decision made by an Executive Officer in accordance with this Section 3.09 (Final Decision-Making Authority) shall be deemed to be a decision of the relevant Committee.

Section 3.10Limitations on Decision-Making.

(a)Neither Party shall have the deciding vote on, and no Committee shall have decision-making authority regarding, any of the following matters:

(i)the imposition of any requirements on the other Party to undertake obligations beyond those for which it is responsible, or to forgo any of its rights, under this Agreement;

(ii)the imposition of any requirements that the other Party takes or declines to take any action that would result in a violation of any Law or any agreement with any Third Party or the infringement of intellectual property rights of any Third Party;

(iii)the resolution of any dispute involving the breach or alleged breach of this Agreement;

(iv)any decision that is expressly stated to require the mutual agreement (or similar language) of the Parties or the approval of the other Party;

(v)any matters that would excuse such Party from any of its obligations under this Agreement; or

(vi)modifying the terms of this Agreement or taking any action to expand or narrow the responsibilities of any Committee.

(b)The decision-making Party shall make its decision in good faith, subject to the terms and conditions of this Agreement, and in a commercially reasonable manner without favoring other products being Developed, Manufactured or Commercialized by or on behalf of such Party or its Affiliates that are not Licensed Products.

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(c)In no event may the decision-making Party unilaterally determine that it has fulfilled any obligations hereunder or that the non-deciding Party has breached any obligations hereunder.

(d)In no event may Licensee unilaterally determine that the events required for the payment of milestone payments have not occurred.

(e)In no event may Tetraphase unilaterally determine that the events required for the payment of milestone payments have occurred.

Section 3.11Scope of Governance.  Notwithstanding the creation of each of the Committees, each Party shall retain the rights, powers and discretion granted to it under this Agreement, and no Committee shall be delegated or vested with rights, powers or discretion unless such delegation or vesting is expressly provided herein, or the Parties expressly so agree in writing.  It is understood and agreed that issues to be formally decided by a particular Committee are only those specific issues that are expressly provided in this Agreement to be decided by such Committee, as applicable.  For clarity, no Committee shall have any rights, powers or discretion to decide any matter not relating to the Development or Commercialization of the Licensed Product in the Field and the Territory, and Tetraphase retains all such rights, powers and discretion.

Section 3.12Alliance Managers.  Each of the Parties shall appoint a single individual to manage Development, Manufacturing and Commercialization obligations between the Parties under this Agreement (each, an “Alliance Manager”).  The role of the Alliance Manager is to act as a single point of contact between the Parties to ensure a successful relationship under this Agreement.  The Alliance Managers may attend any Committee meetings.  Each Alliance Manager shall be a non-voting participant in such Committee meetings, unless s/he is also appointed a member of such Committee; provided, however, that an Alliance Manager may bring any matter to the attention of a Committee if such Alliance Manager reasonably believes that such matter warrants such attention.  Each Party may change its designated Alliance Manager at any time upon written notice to the other Party.  Any Alliance Manager may designate a substitute to temporarily perform the functions of that Alliance Manager by written notice to the other Party.  Each Party’s Alliance Manager and any substitute for an Alliance Manager shall be bound by obligations of confidentiality and non-use applicable to the other Party’s Confidential Information that are at least as stringent as those set forth in ARTICLE XII (Confidentiality).  Each Alliance Manager will also:  (a) plan and coordinate cooperative efforts and internal and external communications; and (b) facilitate the governance activities hereunder and the fulfillment of action items resulting from Committee meetings.

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ARTICLE IV.

DEVELOPMENT

Section 4.01Development in the Field in the Territory.

(a)The Development of Licensed Products in the Field in the Territory shall be governed by the Development Plan, and no Licensee Entity may Develop any Licensed Product in the Field in the Territory other than in accordance with the Development Plan, or as otherwise approved by Tetraphase in advance in writing.  The initial framework for the Development Plan is attached to this Agreement as Exhibit B.  The Parties shall, through the JDC, adopt the initial Development Plan within [**] days after the Effective Date, and once the JDC adopts such initial Development Plan it will be attached (or deemed attached) to this Agreement as Exhibit C.  The JDC shall periodically review the Development Plan and determine whether to update the Development Plan.  A Party may also develop and submit to the JDC from time to time proposed substantive amendments to the Development Plan.  The JDC shall review such proposed amendments and may approve such proposed amendments or any other proposed amendments that the JDC may consider from time to time in its discretion and, upon any such approval by the JDC, the Development Plan shall be amended accordingly.

(b)If, at any time during the Term, Tetraphase notifies Licensee in writing that it plans to conduct, for any Licensed Product, a multi-region clinical trial that includes activities in the Territory, the Parties shall, subject to Section 4.05 (Development Costs)), amend the Development Plan to include such activities in the Territory, and Tetraphase shall grant to Licensee any rights required to enable Licensee to conduct such activities.

(c)Licensee shall use Commercially Reasonable Efforts to execute and to perform, or cause to be performed, the activities assigned to it in the Development Plan, in each case in accordance with Section 4.03 (Standards of Conduct).  

(d)Licensee shall use Commercially Reasonable Efforts to obtain, or cause to be obtained, Regulatory Approval and, if applicable, Reimbursement Approval, for a Licensed Product in the Field in each Jurisdiction in the Territory.

Section 4.02Development Reports.  Within [**] Business Days after the end of each calendar quarter, Licensee shall provide Tetraphase with a written report that summarizes the Development of the Licensed Products in the Field in the Territory performed by the Licensee Entities during the prior calendar quarter, which report shall include the status of each pending and proposed Regulatory Filing for Licensed Products in the Field in the Territory.  In addition, Licensee shall promptly provide written notice to Tetraphase of any significant Development events (e.g., any clinical trial initiation or completion, clinical holds, Regulatory Filings, Regulatory Approvals, Licensee Product Data).

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Section 4.03Standards of Conduct.  The Licensee Entities shall perform all Development activities under the Development Plan in a good scientific manner, in accordance with GLP and GCP, as applicable, and in compliance in all material respects with applicable Laws.

Section 4.04Records.  The Licensee Entities shall maintain written or electronic records in sufficient detail, in a good scientific manner (in accordance with GLP and GCP, as applicable) and appropriate for regulatory and patent purposes, which are complete and accurate in all material respects and reflect all Development work performed under the Development Plan and results achieved.  Tetraphase shall have the right, upon reasonable advance notice, and at reasonable intervals, to inspect and copy all such records (for clarity, including all applicable clinical, regulatory and quality records).

Section 4.05Development Costs. Except as expressly provided in this Agreement or the Development Plan, each Party shall bear its own costs incurred in the performance of its obligations under this ARTICLE IV (Development).  Notwithstanding the foregoing sentence, if any Tetraphase Entity, in collaboration with one or more Licensee Entities, conducts any multi-region clinical trial for any Licensed Product that includes any trial site in the Territory, Licensee may determine, at its sole discretion, whether to participate in such multi-region clinical trial.  In the event that Licensee determines to participate in the aforementioned multi-region clinical trial, such trial shall enroll at least the minimum number of study subjects required to satisfy the applicable Regulatory Authority, and Licensee shall bear both (a) all costs incurred in the performance of such clinical trial in the Territory and (b) a pro rata portion of the Total Indirect Costs incurred in the performance of such multi-region clinical trial outside the Territory, which portion shall be the ratio of study sites in the Territory to total study sites worldwide, provided that such portion shall in no event exceed [**] percent ([**]%) of the Total Indirect Costs incurred in the performance of such multi-region clinical trial outside the Territory; provided, however, that (y) nothing in this Agreement shall prevent or delay any Tetraphase Entity from conducting any such multi-region clinical trial outside the Territory and (z) if Licensee determines not to participate in such multi-region clinical trial outside the Territory pursuant to Section 4.05(b), then notwithstanding Licensee’s rights pursuant to Section 2.01(a) and Section 2.01(b) or Licensee’s access rights pursuant to Section 2.04 (Knowledge Transfer) or Section 5.01(c), Licensee shall not have access to any Tetraphase Product Data or Tetraphase Regulatory Documents arising out of such multi-region clinical trial outside the Territory, unless and until Licensee pays to Tetraphase [**] percent ([**]%) of the amount provided pursuant to clauses (a) and (b) of this sentence with respect to such multi-region clinical trial.  

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ARTICLE V.

REGULATORY

Section 5.01Regulatory Filings.

(a)Under the oversight of the JDC and subject to Section 4.01(a), Licensee shall have the sole right to prepare, obtain, and maintain all Regulatory Filings and Regulatory Approvals, and to conduct communications with the Regulatory Authorities, for the Development or Commercialization of Licensed Products in the Field in the Territory. Licensee shall provide Tetraphase with an opportunity to review and comment on original language versions of all Regulatory Filings in the Territory for which Licensee is responsible under this Section 5.01(a). Licensee shall provide access to interim drafts of all Regulatory Filings (in their original language) to Tetraphase via the access methods (such as secure databases) established by the JDC, and Tetraphase shall provide its comments on the final drafts of all Regulatory Filings or of proposed material actions within [**] days ([**] days for Drug Approval Applications), or such other longer period of time mutually agreed to by the Parties.  In the event that a Regulatory Authority establishes a response deadline for any Regulatory Filing or material action shorter than such [**] day (or [**] day) period, the Parties shall work cooperatively to ensure the other Party has a reasonable opportunity for review and comment within such deadlines. Licensee shall, and shall cause relevant Licensee Entities to, consider any such comments from Tetraphase in good faith.

(b)All Regulatory Filings for Licensed Products in the Field in the Territory shall be filed in the name of Licensee or its designated Licensee Entity or designee, and all Licensee Regulatory Documents (including all Regulatory Approvals) shall be owned by, and shall be the sole property and held in the name of, Licensee or its designated Licensee Entity or designee. All Regulatory Filings and Regulatory Approvals in the Field in the Territory shall be at Licensee’s sole expense.

(c)Subject to Section 4.05(z), (i) Tetraphase shall, at Licensee’s reasonable request and expense, provide Licensee with all reasonable assistance and support in obtaining Regulatory Approvals for the Licensed Products, and in the activities in support thereof, including providing necessary documents or other materials required by applicable Laws to obtain Regulatory Approvals, or attending meetings with Licensee and Regulatory Authorities relating to the Licensed Compound or a Licensed Product upon Licensee’s request, in each case in accordance with the terms and conditions of this Agreement and the applicable Development Plan, and (ii) in support of Licensee’s preparation and filing of any IND or Drug Approval Application with respect to any Licensed Product in the Field in the Territory, Tetraphase shall, at Licensee’s reasonable written request and expense, provide Licensee a complete electronic copy of reasonably requested Tetraphase Regulatory Documents.  In support of each Tetraphase Entity’s preparation and filing of any IND or Drug Approval Application with respect to any Eravacycline Product outside of the Territory, at Tetraphase’s reasonable written request, Licensee shall provide Tetraphase access to a complete electronic copy of all Licensee Regulatory Documents (in the original language).  

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ARTICLE VI.

COMMERCIALIZATION

Section 6.01General.  Under the direction of the JCC, Licensee (itself or through any of the Licensee Entities) shall have the sole right to Commercialize the Licensed Products in the Field in the Territory at its own cost and expense (except as otherwise expressly set forth herein).  At least [**] prior to anticipated filing of the first Drug Approval Application for a Licensed Product in the Field in the Territory, Licensee shall prepare a Launch Plan, which shall be reviewed by the JCC no later than [**] days after the JCC’s receipt of such Launch Plan.  Within [**] months prior to anticipated approval of the first Drug Approval Application for a Licensed Product in the Field in the Territory, Licensee shall prepare the initial Commercialization Plan, which shall be reviewed by the JCC no later than [**] days following the JCC’s receipt of such Commercialization Plan.  Each [**] thereafter, Licensee shall provide the JCC with an updated Commercialization Plan, which the JCC shall review and approve within [**] days after receipt thereof.  

Section 6.02Promotional Materials. The Licensee Entities shall share their promotional materials for the Licensed Products with the JCC on a regular basis, and the JCC shall have the right to review and comment on, which comments shall be considered in good faith by Licensee, any of the Licensee Entities’ promotional materials prior to their use in the Territory.

Section 6.03Commercialization Reports.  Within [**] Business Days after the end of each calendar quarter following the First Commercial Sale of any Licensed Product in the Field in the Territory, Licensee shall provide the JCC with (i) a written report that summarizes Commercialization activities performed during the prior calendar quarter with respect to each Licensed Product in each Jurisdiction in the Territory, (ii) detailed sales reports for each month of the prior calendar quarter of each Licensed Product in each Jurisdiction in the Territory, and (iii) quarterly sales forecasts for each Licensed Product in each Jurisdiction in the Territory.

Section 6.04Commercialization Efforts.  Licensee shall use Commercially Reasonable Efforts to Commercialize Licensed Products in the Field in the Territory following receipt of relevant Regulatory Approvals therefor.

Section 6.05Standards of Conduct.  The Licensee Entities shall perform all Commercialization activities with respect to Licensed Products in the Field in the Territory in a professional and ethical business manner and in compliance in all material respects with applicable Laws.

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Section 6.06Trademarks.  

(a)The applicable Tetraphase Entity(ies) shall own all rights to the Product Trademark(s) developed or used by the Tetraphase Entities with respect to the Commercialization of Licensed Products outside of the Territory (the “Tetraphase Trademarks”), and all goodwill associated therewith, in each country of the world.  The applicable Tetraphase Entity(ies) shall also own rights to any Internet domain names incorporating any Tetraphase Trademark or any variation or part of any Tetraphase Trademark as its URL address or any part of such address.  No Licensee Entity shall use any Tetraphase Trademark without Tetraphase’s prior written consent.

(b)Licensee will develop and propose for the JCC’s review and comment, which comments shall be considered in good faith by Licensee, one or more Product Trademark(s) for use by the Licensee Entities in the Field in the Territory.  Any Product Trademark(s) (other than the Tetraphase Trademarks that Tetraphase permits Licensee to use) that are used by any Licensee Entity to Commercialize Licensed Products in the Field in the Territory are hereinafter referred to as the “Licensee Trademarks.”  The applicable Licensee Entity(ies) shall own all rights to Licensee Trademarks and all goodwill associated therewith, in each country of the world.  The applicable Licensee Entity(ies) shall also own rights to any Internet domain name incorporating any Licensee Trademark or any variation or part of any Licensee Trademark as its URL address or any part of such address.  No Tetraphase Entity shall use any Licensee Trademarks to Commercialize any Licensed Product without Licensee’s prior written consent.

(c)Any use of Tetraphase’s corporate name by any Licensee Entity shall require the prior written consent of Tetraphase.

(d)Except as expressly provided herein, or except as otherwise required by applicable Law or agreed by the Parties in advance in writing, neither Party shall have any right to use the other Party’s or the other Party’s Affiliates’, and Licensee shall not have any right to use any Tetraphase Entity’s, corporate names or logos in connection with any Development or Commercialization of any Licensed Product.

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ARTICLE VII.

MANUFACTURE AND SUPPLY

Section 7.01Supply Obligations.  From and after the execution of applicable Supply Agreements pursuant to Section 7.02 (Supply Agreement), and subject to the terms of such Supply Agreements, Tetraphase will use Commercially Reasonable Efforts, either itself or through Third Parties, to Manufacture Finished Drug Product and supply to Licensee Finished Drug Product in quantities that are reasonably sufficient for the conduct of Development and Commercialization of Licensed Products in the Field in the Territory by the Licensee Entities.  For any Finished Drug Product supplied by Tetraphase to Licensee pursuant to this Section 7.01 (Supply Obligations) for purposes of Commercialization of Licensed Products in the Field in the Territory, Licensee shall pay to Tetraphase an amount equal to [**] percent ([**]%) of Tetraphase’s COGS for such Finished Drug Product, payable within [**] days after receipt of an invoice therefor.  For any Finished Drug Product supplied by Tetraphase to Licensee pursuant to this Section 7.01 (Supply Obligations) for purposes of Development of Licensed Products in the Field in the Territory, Licensee shall pay to Tetraphase an amount equal to [**] percent ([**]%) of Tetraphase’s COGS for such Finished Drug Product, payable within [**] days after receipt of an invoice therefor.

Section 7.02Supply Agreements.  Within [**] days after the Effective Date, or at such later date as may be mutually agreed in writing, the Parties will negotiate in good faith and enter into one or more supply agreements for clinical (including investigator-sponsored trials, but solely to the extent such investigator-sponsored trials have been mutually approved by both Parties) and commercial supply of Licensed Products and related quality agreement(s) (collectively, the “Supply Agreements”), which Supply Agreements will be consistent with the terms set forth in Section 7.01 (Supply Obligations). In addition, the Supply Agreements shall include a provision for the Parties to negotiate in good faith, for a reasonable period of time at the relevant point during which Tetraphase is providing clinical supply to Licensee, the terms and conditions on which Tetraphase would transfer to Licensee or a Third Party manufacturer approved by Tetraphase the then-current process for the Manufacture of the Licensed Products and grant Licensee the right to Manufacture, or have Manufactured, the Licensed Product for Commercialization of the Licensed Product in the Field in the Territory, including, to the extent required, amendment of the relevant provisions of this Agreement to such grant of rights, including Sections 1.71, 1.72, 1.73, 2.01 and 2.06(a)(ii).  Notwithstanding anything to the contrary set forth herein, when the Parties enter into the Supply Agreements, the terms of such Supply Agreements shall supersede the terms set forth in Section 7.01 (Supply Obligations) and in this Section 7.02 (Supply Agreement).

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ARTICLE VIII.

PAYMENTS

Section 8.01Upfront Payment.  Within [**] Business Days after the Effective Date, Licensee shall pay Tetraphase a one-time, non-refundable, non-creditable upfront payment of Seven Million Dollars ($7,000,000).  

Section 8.02Development Milestone Payment.  

(a)Licensee shall make the non-refundable, non-creditable milestone payments to Tetraphase set forth in the table below, each payable once only, no later than [**] days after the earliest date on which the corresponding milestone event has first been achieved by any Licensee Entity with respect to the first Licensed Product to achieve such milestone event.

Milestone Event

Milestone Payment

[**]

[**]

[**]

[**]

[**]

[**]

[**]

[**]

(b)If Licensee has not paid to Tetraphase a milestone payment set forth in a row in the table in Section 8.02(a), and a milestone event set forth in a later row in the table in Section 8.02(a) occurs, then, upon the occurrence of such milestone event set forth in such later row, Licensee shall pay to Tetraphase the milestone payment set forth in such earlier row.  By way of example and not limitation, if Licensee has not paid to Tetraphase the milestone payment set forth in row (a)(i), and the milestone event set forth in row (a)(ii), (a)(iii) or (a)(iv) occurs, then, upon such event, Licensee shall pay to Tetraphase the milestone payment set forth in row (a)(i).

(c)Upon achievement by any Licensee Entity of any of the milestone events listed above, Licensee shall promptly (but in no event more than [**] days after such achievement) notify Tetraphase of such achievement.  

Section 8.03Sales Milestone Payments.  Licensee shall pay to Tetraphase the following non-refundable and non-creditable amounts after the first achievement of aggregate Net Sales of all Licensed Products in the Territory in a calendar year that meet or exceed the minimum annual Net Sales thresholds set forth below, which payment shall be made no later than [**] days after the end of such calendar year:

Annual Net Sales Threshold

Payment Amount

Equal to or greater than $[**]

[**]

Equal to or greater than $[**]

[**]

Equal to or greater than $[**]

[**]

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Each milestone payment in this Section 8.03 (Sales Milestone Payments) shall be payable only once upon the first achievement of such milestone in a given calendar year and no amounts shall be due for subsequent or repeated achievements of such milestone in subsequent calendar years.  For clarity, the Net Sales of all Licensed Products in a calendar year shall be aggregated for purposes of determining whether any milestone in the table above has been met.  If more than one of the milestones set forth in the table above are first achieved in a single calendar year, then Licensee shall pay to Tetraphase in such calendar year all of the payments corresponding to all of the milestones achieved in such calendar year under this Section 8.03 (Sales Milestone Payments).

Section 8.04Royalties.

(a)Subject to the remainder of this Section 8.04 (Royalties), Licensee shall pay Tetraphase the following royalties on aggregate Net Sales of all Licensed Products, at an incremental royalty rate determined by aggregate annual Net Sales of all Licensed Products in each calendar year during the Term in the Territory:

Portion of Annual Net Sales of all Licensed Products

Royalty

Less than or equal to $[**]

[**]

Greater than $[**] and less than or equal to $[**]

[**]

Greater than $[**]

[**]

By way of example and not limitation, if Net Sales of all Licensed Products in the first quarter of a calendar year are [**] Dollars ($[**]), then the royalty shall be [**].  

(b)Running royalties paid by Licensee under this Section 8.04 (Royalties) shall be paid on a Licensed Product-by-Licensed Product and Jurisdiction-by-Jurisdiction basis until the latest of (i) expiration of the last-to-expire Valid Claim that is a composition of matter claim (for clarity, including a formulation claim) in the Tetraphase Patent Rights or Joint Patent Rights that Covers such Licensed Product in the Field in such Jurisdiction, (ii) expiration of marketing or regulatory exclusivity with respect to such Licensed Product in such Jurisdiction, or (iii) ten (10) years from the First Commercial Sale of such Licensed Product in the Field in such Jurisdiction (each, a “Royalty Term”).  Following the expiration of the Royalty Term with respect to a particular Licensed Product in the Field in a Jurisdiction, the license granted by Tetraphase to Licensee pursuant to Section 2.01(a) with respect to such Licensed Product in the Field in such Jurisdiction shall be perpetual, irrevocable, fully-paid and royalty-free, and Net Sales of such Licensed Product shall no longer be included in the aggregate Net Sales calculation in Section 8.03 (Sales Milestone Payments) or Section 8.04(a).

(c)Notwithstanding the foregoing, in the event that, on a Licensed Product-by-Licensed Product, Jurisdiction-by-Jurisdiction and (subject to Section 8.04(c)(iv)) calendar quarter-by-calendar quarter basis:

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(i)in such Jurisdiction in the Territory during such calendar quarter during the Royalty Term for such Licensed Product, one or more applicable Generic Products are on the market in such Jurisdiction and unit sales of such Generic Product(s) in such Jurisdiction constitute more than [**] percent ([**]%) but less than [**] percent ([**]%) of the total unit sales of such Generic Product(s) and Licensed Product in such Jurisdiction, Licensee shall, for such calendar quarter for such Licensed Product in such Jurisdiction, pay to Tetraphase a royalty rate that is [**] percent ([**]%) of the applicable rate set forth in Section 8.04(a);

(ii)in such Jurisdiction in the Territory during such calendar quarter during the Royalty Term for such Licensed Product, one or more applicable Generic Products are on the market in such Jurisdiction and unit sales of such Generic Product(s) in such Jurisdiction constitute [**] percent ([**]%) or more of the total unit sales of such Generic Product(s) and Licensed Product in such Jurisdiction, Licensee shall, for such calendar quarter for such Licensed Product in such Jurisdiction, pay to Tetraphase a royalty rate that is [**] percent ([**]%) of the applicable rate set forth in Section 8.04(a);

(iii)in the event that Section 8.04(c)(i), Section 8.04(c)(ii) does not apply, but, under applicable Law, the royalty rate must be reduced in order to ensure enforceability of the royalty obligation once clause (i) or (ii) of the Royalty Term ends with respect to a Licensed Product in a Jurisdiction, then the royalty with respect to such Licensed Product in such Jurisdiction shall be reduced by [**] percent ([**]%) from the rate set forth in Section 8.04(a).  

(iv)Subject in all cases to Section 8.04(d), if (A) a royalty reduction pursuant to Section 8.04(c)(i) or Section 8.04(c)(ii) is applicable with respect to a calendar quarter, (B) Licensee has paid to Tetraphase a royalty payment with respect to such calendar quarter pursuant to Section 8.05 (Royalty Payments and Reports) and (C) any or all of the amount of royalty reduction to which Licensee is entitled as set forth in clause (A) of this sentence was not applied to the royalty payment paid as set forth in clause (B) of this sentence due to time lag of information regarding market share of Generic Product(s), then the amount of reduction not applied shall be fully creditable against payments owed by Licensee to Tetraphase in one or more subsequent calendar quarters.   

(d)On a Licensed Product-by-Licensed Product, Jurisdiction-by-Jurisdiction and calendar quarter-by-calendar quarter basis, in no event shall the royalty rate payable to Tetraphase under this Section 8.04 (Royalties) be reduced by more than [**] percent ([**]%) of what it would otherwise be by operation of Section 8.04(a) alone with respect to such Licensed Product in such Jurisdiction in such calendar quarter as a result of the reductions set forth in Section 8.04(c).

Section 8.05Royalty Payments and Reports.

(a)On a Licensed Product-by-Licensed Product and Jurisdiction-by-Jurisdiction basis, until the expiration of the Royalty Term with respect to such Licensed Product in such Jurisdiction, Licensee agrees to provide (i) written reports to Tetraphase within [**] Business Days after the end of each calendar month providing a good faith estimate of Net Sales of such Licensed Product in such Jurisdiction by any Licensee Entity in such calendar month and (ii) quarterly written reports to Tetraphase within [**] Business Days after the end of each

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calendar quarter, covering all Net Sales of such Licensed Product in such Jurisdiction by any Licensee Entity, each such written report under this clause (ii) stating for the period in question (A) the amount of gross sales and Net Sales of each Licensed Product in each Jurisdiction in the Territory during the applicable calendar quarter (including such amounts expressed in local currency and as converted to Dollars) and a calculation of the amount of royalty payment due on such Net Sales for such calendar quarter and (B) such information as is reasonably necessary for Tetraphase to comply with its reporting obligations under Section 7.1.1 of the Harvard Agreement.  

(b) Licensee shall make the royalty payments due hereunder within [**] days after the end of each calendar quarter.

Section 8.06Financial Responsibility for In-License Agreements.  Provided that Licensee has complied with this Agreement, Tetraphase shall be solely responsible for payment of any and all amounts due to any Third Party counterparty under or in connection with any In-License Agreement except as set forth in Section 9.04(a)(i) and Section 9.05(c)(i).  Licensee shall be solely responsible for payment of any and all amounts due to any Third Party under or in connection with any Licensee In-License Agreement.

Section 8.07Accounting.  Each Licensee Entity shall keep full, clear and accurate records of Licensed Products that are made, used or sold under this Agreement, in accordance with the Accounting Standards consistently applied, for a period of at least [**] years after the end of the calendar year to which the records relate, setting forth the sales of Licensed Products in sufficient detail to enable royalties and other amounts payable to Tetraphase hereunder to be determined.  Each Licensee Entity further agrees to permit its books and records to be examined by an independent accounting firm selected by Tetraphase or Harvard, as applicable, and reasonably acceptable to Licensee, to verify any reports and payments delivered under this Agreement, upon reasonable notice (which shall be no less than [**] days prior notice) and during regular business hours and subject to a reasonable confidentiality agreement.  The Parties shall reconcile any underpayment or overpayment within [**] days after the accounting firm delivers the results of any audit.  Such examination is to be made at the expense of Tetraphase or Harvard, as applicable, except in the event that the results of the audit reveal an underpayment by Licensee of [**] percent ([**]%) or more during the period being audited, in which case reasonable audit fees for such examination shall be paid by Licensee.

Section 8.08Currency Conversion.  Wherever it is necessary to convert currencies for Net Sales invoiced in a currency other than the Dollar, such conversion shall be made into Dollars at the conversion rate existing in the United States (as reported in the Wall Street Journal) on the last working day of the applicable calendar quarter or, if such rate is unavailable, a substitute therefor reasonably selected by Tetraphase.  All payments due to Tetraphase under this Agreement shall be made without deduction of exchange, collection or other charges.

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Section 8.09Methods of Payment.  All payments due to Tetraphase under this Agreement shall be made in Dollars by wire transfer to a bank account of Tetraphase designated from time to time in writing by Tetraphase.

Section 8.10Taxes.  

(a)Licensee Entities will make all payments to Tetraphase under this Agreement without deduction or withholding for Taxes except to the extent that any such deduction or withholding is required by applicable Law in effect at the time of payment.

(b)The full amount of any Tax required to be deducted or withheld within the meaning of Section 8.10(a) on payments under this Agreement will be duly deducted, withheld and timely paid over by Licensee Entities on behalf of Tetraphase.  If, in accordance with the foregoing, a Licensee Entity withholds any amount, it shall pay to Tetraphase the balance when due, make timely payment to the proper Governmental Authority of the withheld amount and send to Tetraphase proof of such payment within [**] days following such payment.

(c)The Parties will cooperate with respect to all documentation required by any taxing authority or reasonably requested by either Party to secure a reduction in the rate of applicable withholding Taxes.  

(d)If (i) a Licensee Entity (A) had a duty to deduct, withhold and pay over any Tax to any Governmental Authority in connection with any payment it made to Tetraphase under this Agreement but (B) failed to so deduct, withhold and timely pay over all or any portion of such Tax, and (ii) such Tax or portion thereof is assessed against Tetraphase, then such Licensee Entity will indemnify and hold harmless Tetraphase from and against any penalties imposed as a result thereof.

(e)To the extent any VAT is due on any amounts payable to Tetraphase under this Agreement, the applicable Licensee Entity shall bear and timely pay such VAT.  The Parties will cooperate to provide Licensee Entity all documentation required to properly and timely pay such VAT.

(f)For example, if a Licensee Entity is required by the terms and conditions of this Agreement, prior to operation of this Section 8.10 (Taxes), to make a payment of [**] Dollars ($[**]) to Tetraphase, and such payment is subject to [**] percent ([**]%) PRC tax withholding and [**] percent ([**]%) VAT, Licensee shall (i) deduct such [**] percent ([**]%) tax withholding and pay to Tetraphase [**] Dollars ($[**]) and (ii) be responsible for such [**] percent ([**]%) VAT and pay to the applicable Governmental Authority [**] Dollars ($[**]).

Section 8.11Late Payments.  Interest shall be payable by Licensee on any amounts payable to Tetraphase under this Agreement which are not paid by the due date for payment.  All interest shall accrue and be calculated on a daily basis (both before and after any judgment) at a rate per month equal to the lesser of (a) the higher of (i) [**] above the then-current “prime rate” in effect published in The Wall Street Journal or (ii) [**] percent ([**]%) per month or (b) the maximum rate permissible under applicable Law, for the period from the due date for payment until the date of actual payment.  The payment of such interest shall not limit Tetraphase from exercising any other rights it may have as a consequence of the lateness of any payment.   

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ARTICLE IX.

OWNERSHIP OF INTELLECTUAL PROPERTY

Section 9.01Tetraphase Intellectual Property.  Ownership of the Tetraphase Technology shall remain vested at all times in Tetraphase.

Section 9.02Licensee Intellectual Property.  Ownership of the Licensee Technology shall remain vested at all times in Licensee.

Section 9.03Joint Technology.

(a)Each Party shall promptly disclose to the other Party any Joint Invention upon becoming aware thereof, but in any event no later than [**] days after the identification, conception, discovery, authorship, development or reduction to practice thereof.

(b)Ownership of Joint Technology shall be vested jointly in Tetraphase and Licensee.  For purposes of determination of ownership hereunder, inventorship shall be determined according to United States patent Laws.

Section 9.04Prosecution of Patent Rights.  

(a)Subject to the terms of each In-License Agreement:

(i)Tetraphase shall have the sole right, but not the obligation, to file, prosecute and maintain all Tetraphase Patent Rights that are licensed to Tetraphase under the Harvard Agreement (the “Harvard Patent Rights”) and the first right, but not the obligation, to file, prosecute and maintain all other Tetraphase Patent Rights and all Joint Patent Rights.  Licensee shall reimburse Tetraphase for (i) all costs incurred by Tetraphase after the Effective Date in filing, prosecuting and maintaining Tetraphase Patent Rights (for the avoidance of doubt, including amounts paid by Tetraphase after the Effective Date to any Third Party counterparty under any In-License Agreement, including amounts paid after the Effective Date to Harvard under Section 3.3 of the Harvard Agreement, with respect to such Third Party counterparty’s filing, prosecution and maintenance of applicable Tetraphase Patent Rights), (ii) all costs incurred by Tetraphase in filing, prosecuting and maintaining Joint Patent Rights that Cover Licensed Products in the Field in the Territory and (iii) [**] percent ([**]%) of all costs incurred by Tetraphase in filing, prosecuting and maintaining all other Joint Patent Rights, in each case ((i)-(iii)) within [**] days after receiving an invoice therefor.

(ii)Tetraphase shall consult with Licensee on the preparation, filing, prosecution and maintenance of all Tetraphase Patent Rights and Joint Patent Rights, and shall take into consideration the commercial strategy of Licensee in the Territory.  Tetraphase shall furnish Licensee with copies of each document relevant to such preparation, filing, prosecution and maintenance at least [**] days prior to filing such document or making any payment due thereunder to allow for review and comment by Licensee and shall consider in good faith timely comments from Licensee thereon; provided that any comment provided by Licensee with [**] days of Licensee’s receipt of the applicable document shall be considered “timely” for purposes of this sentence.  Tetraphase shall also furnish Licensee with copies of all final filings and

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responses made to any patent authority with respect to the Tetraphase Patent Rights and Joint Patent Rights in a timely manner following submission thereof.

(iii)Licensee shall, without cost to Tetraphase, obtain all necessary assignment documents for Tetraphase, render all signatures that shall be necessary for the relevant patent filings and assist Tetraphase in all other reasonable ways that are necessary for the filing, prosecution, issuance and maintenance of the Joint Patent Rights.

(iv)Should Tetraphase decide that it is no longer interested in maintaining or prosecuting a particular Tetraphase Patent Right (other than a Harvard Patent Right) or Joint Patent Right during the Term, it shall promptly provide Licensee written notice of this decision.  Absent such written notice to Licensee, Tetraphase shall use commercially reasonable efforts to file, prosecute and maintain all Tetraphase Patent Rights (other than Harvard Patent Rights) and all Joint Patent Rights that Cover Licensed Products in the Field in the Territory.  Licensee may, upon written notice to Tetraphase, assume such prosecution and maintenance at Licensee’s sole expense.

(b)Subject to the terms of each Licensee In-License Agreement:

(i)Licensee shall have the sole right, but not the obligation, to file, prosecute and maintain all Licensee Patent Rights that Cover Licensed Products in the Field in the Territory, and the first right, but not the obligation, to file, prosecute and maintain all other Licensee Patent Rights.  Licensee agrees to use commercially reasonable efforts to file, prosecute and maintain all Licensee Patent Rights that Cover Licensed Products in the Territory.

(ii)Licensee shall consult with Tetraphase on the preparation, filing, prosecution and maintenance of all Licensee Patent Rights shall furnish Tetraphase with copies of each document relevant to such preparation, filing, prosecution and maintenance at least [**] days prior to filing such document or making any payment due thereunder to allow for review and comment by Tetraphase and shall consider in good faith timely comments from Tetraphase thereon; provided that any comment provided by Tetraphase with [**] days of Tetraphase’s receipt of the applicable document shall be considered “timely” for purposes of this sentence.  Licensee shall also furnish Tetraphase with copies of all final filings and responses made to any patent authority with respect to the Licensee Patent Rights in a timely manner following submission thereof.

Section 9.05Enforcement and Defense.  Subject to the terms of each In-License Agreement:  

(a)If either Party becomes aware of any Third Party activity in the Territory, including any Development activity (whether or not an exemption from infringement liability for such Development activity is available under applicable Law), that infringes (or that is directed to the Development of a product that would infringe) a Tetraphase Patent Right or a Joint Patent Right, or that misappropriates any Tetraphase Know-How or Joint Know-How, then the Party becoming aware of such activity shall give prompt written notice to the other Party regarding such alleged infringement or misappropriation (collectively, “Infringement Activity”).

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(b)Tetraphase shall have the first right, but not the obligation, to attempt to resolve any Infringement Activity by commercially appropriate steps at its own expense, including the filing of an infringement or misappropriation suit using counsel of its own choice.  If Tetraphase fails to resolve such Infringement Activity or to initiate a suit with respect thereto by the date that is [**] days before any deadline for taking action to avoid any loss of material enforcement rights or remedies, then, with Tetraphase’s written consent (which shall not be unreasonably withheld, conditioned or delayed), Licensee shall have the right, but not the obligation, to attempt to resolve such Infringement Activity by commercially appropriate steps at its own expense, including the filing of an infringement or misappropriation suit using counsel of its own choice.    

(c)Any amounts recovered by a Party as a result of an action pursuant to Section 9.05(b), whether by settlement or judgment, shall be allocated as follows:

(i)first, the Parties shall pay to each Third Party counterparty under any In-License Agreement any amounts owed to such Third Party counterparty with respect to such enforcement action, including any amounts owed to Harvard pursuant to Section 8.2 or 8.3 of the Harvard Agreement;

(ii) second, each Party’s internal and external costs associated with the enforcement action shall be reimbursed; and

(iii)third, any remaining amount shall be retained  [**] percent ([**]%) by the enforcing Party and paid [**] percent ([**]%) to the other Party.

(d)In any event, at the request and expense of the Party bringing an infringement or misappropriation action under Section 9.05(b), the other Party shall provide reasonable assistance in any such action (including entering into a common interest agreement if reasonably deemed necessary by any Party) and to be joined as a party to the suit if necessary for the initiating Party to bring or continue such suit.  Neither Party may settle any action or proceeding brought under Section 9.05(b), or knowingly take any other action in the course thereof, in a manner that materially adversely affects the other Party’s interest in any Tetraphase Patent Rights or Joint Patent Rights without the written consent of such other Party.  Each Party shall always have the right to be represented by counsel of its own selection and its own expense in any suit or other action instituted by the other Party pursuant to Section 9.05(b).

(e)If a Third Party asserts that a Tetraphase Patent Right (other than a Harvard Patent Right) or Joint Patent Right in mainland China is invalid or unenforceable, then Licensee shall have the first right, but not the obligation, to defend against such assertion and, at Licensee’s request and expense, Tetraphase shall provide reasonable assistance in defending against such Third Party assertion.  Licensee shall (i) keep Tetraphase reasonably informed regarding such assertion and such defense (including by providing Tetraphase with drafts of each filing a reasonable period before the deadline for such filing and promptly providing Tetraphase with copies of all final filings and correspondence), (ii) consult with Tetraphase on such defense, and (iii) consider in good faith all comments from Licensee regarding such defense.  In the event Licensee controls such defense, Tetraphase shall have the right to join as a party to such defense and participate with its own counsel at its sole cost; provided that Licensee shall retain control of

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such defense. Should Licensee decide that it is not, or is no longer, interested in controlling such defense, it shall promptly (and in any event by the date that is [**] days before any deadline for taking action to avoid any loss of material rights) provide Tetraphase written notice of this decision.  Tetraphase may, upon written notice to Licensee, assume such defense at Tetraphase’s sole expense.

(f)If a Third Party asserts that a Tetraphase Patent Right or Joint Patent Right anywhere in the Territory other than in mainland China is invalid or unenforceable, then Tetraphase shall have the first right, but not the obligation, to defend against such assertion.  Should Tetraphase decide that it is not, or is no longer, interested in controlling such defense with respect to any Tetraphase Patent Right other than a Harvard Patent Right or any Joint Patent Right, it shall promptly (and in any event by the date that is [**] days before any deadline for taking action to avoid any loss of material rights) provide Licensee written notice of this decision.  Licensee may, upon written notice to Tetraphase, assume such defense at Licensee’s sole expense.

Section 9.06Defense of Third Party Infringement and Misappropriation Claims.  Subject to the terms of each In-License Agreement:

(a)If a Third Party asserts that a Patent Right or other right controlled by it in the Territory is infringed or misappropriated by a Party’s activities under this Agreement or a Party becomes aware of a Patent Right or other right that might form the basis for such a claim, the Party first obtaining knowledge of such a claim or such potential claim shall immediately provide the other Party with notice thereof and the related facts in reasonable detail.  The Parties shall discuss what commercially appropriate steps, if any, to take to avoid infringement or misappropriation of said Third Party Patent Right or other right controlled by such Third Party in the Territory.  

(b)If a Third Party asserts that a Patent Right or other right controlled by it in the Territory is infringed or misappropriated by a Party’s activities under this Agreement, then such Party shall have the first right, but not the obligation, to defend against such assertion and, at such Party’s request and expense, the other Party will provide reasonable assistance in defending against such Third Party assertion.  Such Party shall keep the other Party reasonably informed regarding such assertion and such defense.

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Section 9.07Patent Term Extensions.  Subject to the terms of each In-License Agreement, Tetraphase shall have the sole authority to select the appropriate Tetraphase Patent Rights or Joint Patent Rights for filing to obtain patent term extensions, including supplementary protection certificates and any other extensions that are now available or become available in the future, for Licensed Products in the Field in the Territory, and shall consult with Licensee with respect to such decisions and shall consider the comments and concerns of Licensee in good faith.  Licensee shall cooperate with Tetraphase in gaining any such patent term extensions, including by signing all necessary papers.

Section 9.08Trademarks.  Licensee shall be responsible for the registration, maintenance and enforcement of the Licensee Trademarks throughout the Territory, as well as all expenses associated therewith.

Section 9.09Recordal.  Tetraphase shall, at Licensee’s request and expense, promptly provide Licensee with all necessary assistance and documents required for all government approvals, registrations and/or recordals required or advisable under any applicable Law in the Territory (or any part thereof) to enable the Parties to exercise, enforce and enjoy all of the rights and obligations contained thereunder, including any approval, registration or recordal required under the People’s Republic of China (“PRC”) technology import and export laws and the PRC patent laws.

ARTICLE X.

DATA SECURITY AND ADVERSE DRUG EVENTS AND REPORTS

Section 10.01Data Security.  During the Term, Tetraphase and its Affiliates and each Licensee Entity will maintain safety and facility procedures, data security procedures and other safeguards against the disclosure, destruction, loss, or alteration of Licensee’s or Tetraphase’s, respectively, information in its possession, which such procedures and safeguards shall be no less rigorous than those maintained by Tetraphase or Licensee, respectively, for its own information of a similar nature.

Section 10.02Complaints.  Each Party shall maintain a record of all non-medical and medical product-related complaints it receives with respect to the Licensed Compound or any Licensed Product.  Each Party shall notify the other Party of any such complaint received by it in sufficient detail and in accordance with the timeframes and procedures for reporting established, and in any event in sufficient time to allow each Tetraphase Entity and each Licensee Entity to comply with any and all regulatory requirements imposed upon it, including in accordance with International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (“ICH”) guidelines.  The Party that holds the applicable Regulatory Filing(s) in a particular country shall investigate and respond to all such complaints in such country with respect to the Licensed Compound or any Licensed Product as soon as reasonably practicable.  All such responses shall be made in accordance with the procedures established pursuant to ICH, FDA, EMA, CFDA and other applicable guidelines.  The Party responsible for responding to such complaint shall promptly provide the other Party a copy of any such response.

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Section 10.03Adverse Drug Events.  [**] days prior to the commencement of any clinical trial for any Licensed Product in the Territory, the Parties shall enter into the Safety Data Exchange Agreement.  Such Safety Data Exchange Agreement shall provide for the exchange by the Parties of any information of which a Party becomes aware concerning any adverse event experienced by a subject or patient being administered any Licensed Product, whether or not such adverse event is determined to be attributable to any Licensed Product, including any such information received by either Party from any Third Party (subject to receipt of any required consents from such Third Party).  It is understood that each Party and its Affiliates and licensees or sublicensees shall have the right to disclose such information if such disclosure is reasonably necessary to comply with applicable Laws and requirements of any applicable Regulatory Authority.  The Safety Data Exchange Agreement will also detail Licensee’s responsibilities relating to recalls, suspensions and withdrawals of each Licensed Product.

ARTICLE XI.

REPRESENTATIONS, WARRANTIES, AND COVENANTS

Section 11.01Mutual Representations and Warranties.  Each of Licensee and Tetraphase hereby represents and warrants to the other Party as of the Effective Date that:

(a)it is a corporation or entity duly organized and validly existing under the Laws of the state, municipality, province, administrative division or other jurisdiction of its incorporation or formation;

(b)the execution, delivery and performance of this Agreement by it has been duly authorized by all requisite corporate action;

(c)it has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and such performance does not conflict with or constitute a breach of any of its agreements with any Third Party;

(d)it has the right to grant the rights and licenses described in this Agreement;

(e)it has not made any commitment to any Third Party in conflict with the rights granted by it hereunder;

(f)to its knowledge, no consent, approval or agreement of any person or Governmental Authority is required to be obtained in connection with the execution and delivery of this Agreement; and

(g)it has not been debarred by the FDA, is not the subject of a conviction described in Section 306 of the FD&C Act, and is not subject to any similar sanction of any other Governmental Authority outside of the U.S., and neither it nor any of its Affiliates has used, in any capacity, any person who either has been debarred by the FDA, is the subject of a conviction described in Section 306 of the FD&C Act or is subject to any such similar sanction inside or outside of the U.S.  

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Section 11.02Mutual Covenants.  Each of Licensee and Tetraphase hereby covenants to the other Party that:

(a)it will not engage, in any capacity in connection with this Agreement or any ancillary agreement, any person who either has been debarred by the FDA, is the subject of a conviction described in Section 306 of the FD&C Act or is subject to any such similar sanction inside or outside of the U.S., and such Party shall inform the other Party in writing promptly if such Party or any person engaged by such Party who is performing services under this Agreement, or any ancillary agreements, is debarred or is the subject of a conviction described in Section 306 of the FD&C Act or any similar sanction inside or outside of the U.S., or if any action, suit, claim, investigation or legal or administrative proceeding is pending or, to such Party’s knowledge, is threatened, relating to the debarment or conviction of a Party, any of its Affiliates or any such person performing services hereunder or thereunder;

(b)during the Term, it will not make any commitment to any Third Party in conflict with the rights granted by it hereunder; and

(c)it will comply with all applicable Laws in performing its activities hereunder.

Section 11.03Additional Tetraphase Warranties.  Tetraphase hereby represents and warrants to Licensee as of the Effective Date that:

(a)to Tetraphase’s knowledge, Exhibit A contains a list of all Tetraphase Patent Rights existing as of the Effective Date (the “Existing Patents”);

(b)to Tetraphase’s knowledge, each issued patent within the Existing Patents as of the Effective Date is not invalid or unenforceable, in whole or in part;

(c)all of the In-License Agreements existing on the Effective Date are listed on Exhibit E;

(d)there are no claims, judgments, or settlements against, or amounts with respect thereto, owed by Tetraphase or any of its Affiliates relating to the Existing Regulatory Documents, the Existing Patents, or the Tetraphase Know-How;

(e)no claim or litigation has been brought and served on Tetraphase, or, to Tetraphase’s knowledge, threatened, by any Person alleging that the issued patents in the Existing Patents are invalid or unenforceable;

(f)to Tetraphase’s knowledge, the Development or Commercialization in the Territory of the Licensed Product, in the intravenous form in which such Licensed Product is being clinically Developed by Tetraphase in the U.S. as of the Effective Date and in the indications for which such form has been clinically Developed by Tetraphase in the U.S. as of the Effective Date, will not infringe any Patent Right;

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(g)to Tetraphase’s knowledge, no Third Party is infringing or misappropriating any Tetraphase Technology in the Field in the Territory in derogation of the rights granted to Licensee in this Agreement;

(h)Tetraphase has not received written notice of any investigations, inquiries, actions or other proceedings pending before or threatened by any Regulatory Authority or other Governmental Authority in the Territory with respect to the Licensed Products in the Field in the Territory arising from any default by Tetraphase or any of its Affiliates or a Third Party acting on behalf Tetraphase in the discovery, Research or Development of the Licensed Products;

(i)to Tetraphase’s knowledge, the Existing Patents represent all Patent Rights that Tetraphase or its Affiliates own, Control or, to Tetraphase’s knowledge, otherwise have rights under, as of the Effective Date that Cover the Development or Commercialization of the Licensed Product in the Field in the Territory in accordance with this Agreement.  To Tetraphase’s knowledge, there is no Know-How owned by or otherwise in the possession or control of Tetraphase or any of its Affiliates as of the Effective Date that is necessary or reasonably useful for the Development or Commercialization of the Licensed Product in the Field in the Territory that is not within the Tetraphase Know-How;

(j)except with respect to the rights granted to or retained by Harvard or any Governmental Authority under the Harvard Agreement, neither Tetraphase nor any of its Affiliates has licensed or otherwise encumbered its right, title or interest under the Existing Patents, Tetraphase Know-How or Existing Regulatory Documents (including by granting any covenant not to sue with respect thereto) in a manner that is inconsistent with the rights and licenses granted to Licensee under this Agreement;

(k)Tetraphase has obtained from its Affiliates the licenses and other rights necessary for Tetraphase to grant to Licensee the rights and licenses provided herein and for Licensee to perform its obligations hereunder;

(l)to Tetraphase’s knowledge, 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 pending;

(m)Tetraphase owns or otherwise Controls the Existing Patents, and owns or otherwise Controls any Tetraphase Know-How existing as of the Effective Date;

(n)to Tetraphase’s knowledge, Tetraphase and its Affiliates have generated, prepared, maintained and retained all Regulatory Documents that is required to be maintained or retained pursuant to and in accordance with, as applicable, GLP and GCP and applicable Law; and

(o)to Tetraphase’s knowledge, true, complete and correct copies (as of the Effective Date) of all material adverse information with respect to the safety and efficacy of the Licensed Products known to Tetraphase have been provided to Licensee prior to the Effective Date.

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Section 11.04Additional Licensee Warranties and Covenants. Licensee hereby represents, warrants and covenants to Tetraphase that:  

(a)Licensee has the capability to Develop, obtain Regulatory Approval and, if applicable, Reimbursement Approval for, and Commercialize Licensed Products as contemplated in this Agreement; and

(b)each Licensee Entity (other than Licensee) and each Licensee Entity’s employees and permitted agents and contractors have executed agreements or have existing obligations under applicable Laws, or, upon their engagement by Licensee or any of its Affiliates, will execute such agreements, requiring automatic assignment to Licensee of all Inventions or other Know-how identified, discovered, authored, developed, conceived or reduced to practice during the course of and as the result of their association with Licensee or its Affiliates, and all intellectual property rights therein, and obligating the relevant individual or entity to maintain as confidential Licensee’s confidential information related to any Licensed Product, Eravacycline Product or Eravacycline Materials as well as confidential information of other parties (including Tetraphase and its Affiliates) which such individual or entity may receive, to the extent required to support Licensee’s obligations under this Agreement.

Section 11.05Additional Tetraphase Warranty and Covenant.  Tetraphase hereby represents and warrants to Licensee as of the Effective Date that (a) it has provided a true, complete and correct copy of each In-License Agreement listed on Exhibit E, as amended, and (b) to Tetraphase’s knowledge, Tetraphase is not, and has not been, in material breach of any In-License Agreement listed on Exhibit E.  Tetraphase (a) will use commercially reasonable efforts to comply with each In-License Agreement to the extent such obligations have not been delegated to Licensee and to the extent that failure to do so would materially adversely affect Licensee’s rights hereunder and (b) will not, without Licensee’s prior written consent, amend or otherwise modify or permit to be amended or modified, any In-License Agreement in a manner that would materially adversely affect the rights and licenses granted to Licensee under this Agreement.

Section 11.06Anti-Corruption.

(a)Anti-Corruption Provisions.  Each Party represents and warrants to the other Party that such Party has not, directly or indirectly, offered, promised, paid, authorized or given, and each Party agrees that such Party will not, in the future, offer, promise, pay, authorize or give, money or anything of value, directly or indirectly, to any Government Official (as defined below) or Other Covered Party (as defined below) for the purpose, pertaining to this Agreement, of:  (i) influencing any act or decision of such Government Official or Other Covered Party; (ii) inducing such Government Official or Other Covered Party to do or omit to do an act in violation of a lawful duty; (iii) securing any improper advantage; or (iv) inducing such Government Official or Other Covered Party to influence the act or decision of a Governmental Authority, in order to obtain or retain business, or direct business to, any person or entity, in any way related to this Agreement.

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For purposes of this Agreement:  (A) “Government Official” means any official, officer, employee or representative of:  (1) any Governmental Authority; (2) any public international organization or any department or agency thereof; or (3) any company or other entity owned or controlled by any Governmental Authority; and (B) “Other Covered Party” means any political party or party official, or any candidate for political office.

(b)Anti-Corruption Compliance.

(i)In performing under this Agreement, each Party, on behalf of itself and its respective Affiliates, agrees to comply with all applicable anti-corruption Laws, including the Foreign Corrupt Practices Act of 1977, as amended from time to time (“FCPA”) and all anti-corruption Laws of the Territory.

(ii)Each Party represents and warrants to the other Party that such Party is not aware of any Government Official or Other Covered Party having any financial interest in the subject matter of this Agreement or in any way personally benefiting, directly or indirectly, from this Agreement.

(iii)No Party, nor any Affiliate of any Party, shall give, offer, promise or pay any political contribution or charitable donation at the request of any Government Official or Other Covered Party that is in any way related to this Agreement or any related activity.

(iv)In the event that a Party violates the FCPA, any anti-corruption Law of the Territory or any other applicable anti-corruption Law, or breaches any provision in this Section 11.06 (Anti-Corruption), the other Party shall have the right to unilaterally terminate this Agreement pursuant to Section 14.03 (Termination for Breach), subject to the cure periods therein.

Section 11.07Disclaimer.  EXCEPT AS EXPRESSLY SET FORTH HEREIN, THE INTELLECTUAL PROPERTY RIGHTS PROVIDED BY TETRAPHASE TO LICENSEE HEREIN ARE PROVIDED “AS IS” AND WITHOUT WARRANTY.  EXCEPT AS EXPRESSLY SET FORTH HEREIN, EACH OF THE PARTIES EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OR ENFORCEABILITY OF THEIR RESPECTIVE INTELLECTUAL PROPERTY RIGHTS, AND NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

Section 11.08Limitation of Liability.  NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, EXEMPLARY, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES OR DAMAGES FOR LOSS OF PROFIT OR LOST OPPORTUNITY IN CONNECTION WITH THIS AGREEMENT, ITS PERFORMANCE OR LACK OF PERFORMANCE HEREUNDER, OR ANY LICENSE GRANTED HEREUNDER.  THE FOREGOING SHALL NOT LIMIT (a) ANY INDEMNIFICATION OBLIGATIONS HEREUNDER OR (b) REMEDIES AVAILABLE TO EITHER PARTY WITH RESPECT TO A BREACH OF ARTICLE XII (CONFIDENTIALITY) OR Section 2.06 OR FRAUD COMMITTED BY THE OTHER PARTY.

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ARTICLE XII.

CONFIDENTIALITY

Section 12.01Generally.  During the Term and for a period of [**] years thereafter, each Party (a) shall maintain in confidence all Confidential Information of the other Party; (b) shall not use such Confidential Information for any purpose except to fulfill its obligations or exercise its rights under this Agreement; and (c) shall not disclose such Confidential Information to anyone other than those of its Affiliates, directors, investors, prospective investors, lenders, prospective lenders, acquirers, prospective acquirers, licensees, prospective licensees, sublicensees, prospective sublicensees, employees, consultants, financial or legal advisors, or other agents or contractors (collectively, “Representatives”) who are bound by written obligations of nondisclosure and non-use no less stringent than those set forth in this ARTICLE XII (Confidentiality) and to whom such disclosure, under this Agreement or the Confidentiality Agreement, is necessary in connection with the fulfillment of such Party’s obligations or exercise of such Party’s rights under this Agreement or in connection with bona fide financing or acquisition activities.  Each Party shall (y) ensure that such Party’s Representatives who receive any of the other Party’s Confidential Information comply with the obligations set forth in this ARTICLE XII (Confidentiality) and (z) be responsible for any breach of these obligations by any of its Representatives who receive any of the other Party’s Confidential Information.  Each Party shall notify the other Party promptly on discovery of any unauthorized use or disclosure of the other’s Confidential Information.  Notwithstanding anything to the contrary in this ARTICLE XII (Confidentiality), Tetraphase may disclose Licensee’s Confidential Information to each Third Party counterparty under any In-License Agreement as reasonably required to fulfill Tetraphase’s obligations under such In-License Agreement, and Licensee acknowledges and agrees that, with respect to any such Confidential Information, such Third Party counterparty(ies) shall only be bound by the confidentiality obligations set forth in the applicable In-License Agreement(s).

Section 12.02Exceptions.  The obligations of confidentiality, non-disclosure, and non-use set forth in Section 12.01 (Generally) shall not apply to, and “Confidential Information” shall exclude, any information to the extent the receiving Party (the “Recipient”) can demonstrate that such information:  (a) was in the public domain or publicly available at the time of disclosure to the Recipient or any of its Affiliates by the disclosing Party or any of its Affiliates pursuant to this Agreement or the Confidentiality Agreement, or thereafter entered the public domain or became publicly available, in each case other than as a result of any action of the Recipient, or any of its Representatives, in breach of this Agreement or the Confidentiality Agreement; (b) was rightfully known by the Recipient or any of its Affiliates (as shown by its written records) prior to the date of disclosure to the Recipient or any of its Affiliates by the disclosing Party or any of its Affiliates pursuant to this Agreement or the Confidentiality Agreement; (c) was received by the Recipient or any of its Affiliates on an unrestricted basis from a Third Party rightfully in possession of such information and not under a duty of confidentiality to the disclosing Party or any of its Affiliates; or (d) was independently developed by or for the Recipient or any of its Affiliates without reference to or reliance on the Confidential Information of the other Party or any of its Affiliates (as demonstrated by written records).  

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Section 12.03Permitted Disclosures.  Notwithstanding any other provision of this Agreement, Recipient’s (or its Affiliates’) disclosure of the other Party’s Confidential Information shall not be prohibited if such disclosure:  (a) is in response to a valid order of a court or other Governmental Authority; or (b) is otherwise required by applicable Law or rules of a nationally recognized securities exchange or NASDAQ.  If a Recipient is required to disclose Confidential Information pursuant to Section 12.03(a) or Section 12.03(b), prior to any disclosure the Recipient shall, to the extent practicable, provide the disclosing Party with prior written notice of such disclosure in order to permit the disclosing Party to seek a protective order or other confidential treatment of such disclosing Party’s Confidential Information.  Further, notwithstanding any other provision of this Agreement but subject to (i) Section 12.01 (Generally) with respect to disclosures to Representatives and (ii) if applicable, the first two sentences of this Section 12.03 (Permitted Disclosures), either Party may disclose the other Party’s Confidential Information to the extent necessary to fulfill the obligations imposed on the Recipient under this Agreement or exercise the rights granted to or retained by the Recipient under this Agreement, including in filing or prosecuting patent applications, prosecuting or defending litigation, responding to an investigation by a Governmental Authority, or otherwise establishing rights or fulfilling or enforcing obligations under this Agreement, making Regulatory Filings with respect to any Licensed Product in the Field in the Territory (if the Recipient is Licensee) or any Eravacycline Product outside of the Territory (if the Recipient is Tetraphase), or conducting Development, or Commercialization with respect to any Licensed Product in the Field in the Territory (if the Recipient is Licensee) or conducting Development or Commercialization with respect to the Licensed Compound or any Eravacycline Product outside the Territory or Researching or Manufacturing  the Licensed Compound or any Eravacycline Product (if the Recipient is Tetraphase).  

Section 12.04Publicity.  The Parties recognize that each Party may from time to time desire to issue press releases and make other public statements or public disclosures regarding the terms of this Agreement.  In such event, the Party desiring to issue a press release or make a public statement or public disclosure shall provide the other Party with a copy of the proposed press release, statement or disclosure for review and approval as soon as practicable prior to publication, which advance approval shall not be unreasonably withheld, conditioned or delayed.  No other public statement or public disclosure of, or concerning, the terms of this Agreement shall be made, either directly or indirectly, by either Party, without first obtaining the written approval of the other Party.  Once any public statement or public disclosure has been approved in accordance with this Section 12.04 (Publicity), then either Party may appropriately communicate information contained in such permitted statement or disclosure.  Notwithstanding anything to the contrary in this ARTICLE XII (Confidentiality), (a) a Party may disclose the terms of this Agreement where required, as reasonably determined by the disclosing Party, by applicable Law or legal process or by applicable stock exchange or NASDAQ rule (with prompt notice of any such legally required disclosure to the other Party and to the extent practicable an opportunity to comment on such disclosure), (b) a Party may disclose the terms of this Agreement under obligations of confidentiality and non-use that are at least as stringent as those set forth in ARTICLE XII (Confidentiality) to such Party’s Representatives in connection with such Party’s fulfillment of obligations or exercise of rights hereunder or in connection with such Party’s bona fide financing or acquisition activities, and (c) Tetraphase may disclose the terms of this Agreement to any Third Party counterparty under any In-License Agreement, and Licensee acknowledges and agrees that, with respect to the terms of

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this Agreement, each such Third Party counterparty shall only be bound by the confidentiality obligations set forth in the applicable In-License Agreement(s).

Section 12.05Publications.  Tetraphase acknowledges Licensee’s interest in publishing certain key results of Licensee’s Development and Commercialization of Licensed Products in the Field in the Territory. Licensee recognizes the mutual interest in obtaining valid patent protection and Tetraphase’s interest in protecting its trade secret information. Consequently, except for disclosures permitted pursuant to Section 12.02 (Exceptions), Section 12.03 (Permitted Disclosures) or Section 12.04 (Publicity), if Licensee wishes to make a publication or public presentation with respect to the Development, Manufacturing or Commercialization of Licensed Products in the Field in the Territory, Licensee shall deliver to Tetraphase a copy of the proposed written publication or presentation within [**] days prior to submission for publication or presentation. Tetraphase shall have the right (a) to require modifications to the publication or presentation for patentability reasons or trade secret reasons, and Licensee will remove all of Tetraphase’s Confidential Information if requested by Tetraphase and (b) to require a reasonable delay in publication or presentation in order to protect patentable information. If Tetraphase requests a delay, then Licensee shall delay submission or presentation for a period of [**] days (or such shorter period as may be mutually agreed by the Parties) to enable Tetraphase to file patent applications protecting Tetraphase’s rights in such information.

Section 12.06Injunctive Relief.  Each Party acknowledges and agrees that there may be no adequate remedy at law for any breach of its obligations under this ARTICLE XII (Confidentiality), that any such breach may result in irreparable harm to the other Party and, therefore, that upon any such breach or any threat thereof, such other Party may seek appropriate equitable relief in addition to whatever remedies it might have at law, without the necessity of showing actual damages.

ARTICLE XIII.

INDEMNIFICATION

Section 13.01Indemnification by Tetraphase.  Tetraphase shall indemnify, hold harmless and defend Licensee and its Affiliates, and their respective directors, officers, consultants and employees (the Licensee Indemnitees”) from and against any and all Third Party suits, claims, actions, demands, liabilities, expenses, costs, damages, deficiencies, obligations or losses (including reasonable attorneys’ fees, court costs, witness fees, damages, judgments, fines and amounts paid in settlement) (“Losses”) to the extent that such Losses arise out of (a) any breach of this Agreement by Tetraphase, (b) the Development, Manufacture or Commercialization of the Licensed Compound or any Licensed Product by or on behalf of any Tetraphase Entity or (c) the gross negligence or willful misconduct of any Tetraphase Indemnitee.  Notwithstanding the foregoing, Tetraphase shall not have any obligation to indemnify the Licensee Indemnitees to the extent that the applicable Losses arise out of the negligence or willful misconduct of any Licensee Indemnitee or any breach of this Agreement by Licensee.

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Section 13.02Indemnification by Licensee.  Licensee shall indemnify, hold harmless and defend Tetraphase and its Affiliates, and their respective directors, officers, employees and consultants (the “Tetraphase Indemnitees”) from and against any and all Losses, to the extent that such Losses arise out of (a) any breach of this Agreement by Licensee, or any act or failure to act by any Licensee Entity that causes a breach of any In-License Agreement, (b) the Development or Commercialization of the Licensed Compound or any Licensed Product by or on behalf of any Licensee Entity or (c) the gross negligence or willful misconduct of any Licensee Indemnitee.  Notwithstanding the foregoing, Licensee shall not have any obligation to indemnify the Tetraphase Indemnitees to the extent that the applicable Losses arise out of the negligence or willful misconduct of any Tetraphase Indemnitee or any breach of this Agreement by Tetraphase.

Section 13.03Procedure.  In the event of a claim by a Third Party against an Licensee Indemnitee or Tetraphase Indemnitee entitled to indemnification under this Agreement (“Indemnified Party”), the Indemnified Party shall promptly notify the Party obligated to provide such indemnification (“Indemnifying Party”) in writing of the claim and the Indemnifying Party shall undertake and solely manage and control, at its sole expense, the defense of the claim and its settlement.  The Indemnified Party shall cooperate with the Indemnifying Party.  The Indemnified Party may, at its option and expense, be represented in any such action or proceeding by counsel of its choice.  The Indemnifying Party shall not be liable for any litigation costs or expenses incurred by the Indemnified Party without the Indemnifying Party’s written consent.  The Indemnifying Party shall not settle any such claim unless such settlement fully and unconditionally releases the Indemnified Party from all liability relating thereto and does not impose any obligations on the Indemnified Party, unless the Indemnified Party otherwise agrees in writing.  No Indemnified Party may settle any claim for which it is being indemnified under this Agreement without the Indemnifying Party’s prior written consent.  

Section 13.04Insurance. Licensee shall, at its own expense, obtain and maintain insurance with a reputable insurance carrier with respect to the Licensee Entities’ Development and Commercialization of Licensed Products in the Field in the Territory under this Agreement in such type and amount and subject to such deductibles and other limitations as biopharmaceutical companies in the Territory customarily maintain with respect to the Development and Commercialization of similar products, but in any event no less than [**] Dollars ($[**]) per incident and [**] Dollars ($[**]) annual aggregate.  Such insurance policy shall provide product liability coverage and broad form contractual liability coverage for Licensee’s indemnification obligations under this Agreement and shall name the Tetraphase Indemnitees and the Harvard Indemnitees as additional insureds.  Licensee shall provide a copy of such insurance policy to Tetraphase upon reasonable request by Tetraphase (and, by way of example and not limitation, any request by Tetraphase made [**], or at Harvard’s request, shall be considered reasonable).  Licensee shall provide Tetraphase with written notice at least [**] days prior to any cancellation, non-renewal or material change in such insurance.  If Licensee does not obtain replacement insurance providing comparable coverage within such [**] day period, Tetraphase shall have the right to terminate this Agreement effective at the end of such [**] day period without notice or any additional waiting periods.  This Section 13.04 (Insurance) shall survive expiration or termination of this Agreement and last until [**] years after the last sale of any Licensed Product in the Field in the Territory (or Terminated Territory, as applicable) by any Licensee Entity.    

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Section 13.05Indemnification of Harvard.  Licensee shall indemnify, hold harmless and defend Harvard and its current or former directors, governing board members, trustees, officers, faculty, medical and professional staff, employees, students and agents and their respective successors, heirs and assigns (collectively, the “Harvard Indemnitees”) from and against any and all Losses, to the extent that such Losses arise out of, are based upon, or otherwise relate to (a) any acts or omissions of Licensee, its Affiliates or any of its sublicensees in connection with Licensed Products or this Agreement or (b) product liability concerning any product, process, or service made, used or sold pursuant to any right or license granted under this Agreement.  Licensee shall not settle any claim for which a Harvard Indemnitee seeks indemnification from Licensee unless such settlement fully and unconditionally releases Harvard from all liability relating thereto, does not impose any obligations on the Harvard Indemnitee and does not limit the scope, validity or enforceability of any Licensed Patent Right (as defined in the Harvard Agreement), unless Harvard otherwise agrees in writing.  Licensee shall, at its own expense, provide attorneys reasonably acceptable to Harvard to defend against any such claim, whether or not such actions are rightfully brought.

ARTICLE XIV.

TERM AND TERMINATION

Section 14.01Term.  The term of this Agreement shall begin on the Effective Date and, unless earlier terminated in accordance with the terms of this ARTICLE XIV (Term and Termination), will expire upon the later of (a) expiration of the last-to-expire Royalty Term or (b) the expiration of the Harvard Agreement (the Term”).

Section 14.02Termination for Patent Right Challenge.  In the event that any Licensee Entity challenges, or assists any individual or entity in challenging, the validity, patentability or enforceability of any Patent Right that (a) is owned by or licensed to Tetraphase or any of its Affiliates and (b) Covers or otherwise claims the Licensed Compound or any Eravacycline Product or their respective Research, Development, Manufacture or Commercialization anywhere in the world, or otherwise opposes the validity, patentability or enforceability of any such Patent Right (except, in each case, as required by Law), then, to the extent consistent with applicable Law, Tetraphase may immediately terminate this Agreement by providing written notice thereof to Licensee.

Section 14.03Termination for Breach.  Subject to the terms and conditions of this Section 14.03 (Termination for Breach), a Party (the “Non-Breaching Party”) shall have the right, in addition to any other rights and remedies available to such Party at law or in equity, to terminate this Agreement in the event the other Party (the “Breaching Party”) is in material breach of its obligations under this Agreement.  The Non-Breaching Party shall first provide written notice to the Breaching Party, which notice shall identify with particularity the alleged breach (the “Breach Notice”).  With respect to material breaches of any payment provision hereunder, the Breaching Party shall have a period of [**] days after such Breach Notice is provided to cure such breach.  With respect to all other breaches, the Breaching Party shall have a period of [**] days after such Breach Notice is provided to cure such breach.  Notwithstanding anything to the contrary in this Section 14.03 (Termination for Breach), with respect to any breach by Licensee that results, or could reasonably be expected to result in, a

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breach of any In-License Agreement, Licensee shall have a period of [**] days after Tetraphase provides written notice to Licensee that Tetraphase has received a written notice of breach from the applicable Third Party licensor to cure such breach.  If such breach is not cured within the applicable period set forth above, the Non-Breaching Party may, at its election, terminate this Agreement upon written notice to the Breaching Party; provided that, if a material breach pertains only to facts relating to one or more Jurisdictions other than mainland China, then the Non-Breaching Party shall only have the right to terminate this Agreement only with respect to such Jurisdiction(s); provided, further, that, solely with respect to any breach (other than a breach of any payment provision) that is not reasonably likely to result in a breach of any In-License Agreement, the termination shall not become effective for [**] days after the Breach Notice if the breach specified in such Breach Notice cannot be cured within the initial [**] day cure period, and if the Breaching Party commenced actions to cure such breach within the initial [**] day cure period and thereafter diligently continued such actions and cured such breach within such [**] day period.  The waiver by either Party of any breach of any term or condition of this Agreement shall not be deemed a waiver as to any subsequent or similar breach.  In the event Licensee is entitled to terminate this Agreement in its entirety pursuant to this Section 14.03 (Termination for Breach), as an alternative to such termination, Licensee may elect upon written notice to Tetraphase that, as an alternative to such termination, from the date on which such termination would otherwise have become effective, any royalties otherwise payable by Licensee to Tetraphase pursuant to Section 8.04 (Royalties) shall be reduced by [**] percent ([**]%) and, for clarity, this Agreement shall otherwise continue in full force and effect.  Such election by Licensee of a royalty reduction as an alternative to termination for a breach shall not be deemed a waiver as to any subsequent or similar breach.

Section 14.04[Intentionally Left Blank].

Section 14.05Termination for Bankruptcy and Rights in Bankruptcy.  

(a)To the extent permitted under applicable Law, if, at any time during the Term, an Event of Bankruptcy (as defined below) relating to either Party (the “Bankrupt Party”) occurs, the other Party (the “Other Party”) shall have, in addition to all other legal and equitable rights and remedies available to such Party, the option to terminate this Agreement upon sixty (60) days written notice to the Bankrupt Party.  It is agreed and understood that, if the Other Party does not elect to terminate this Agreement upon the occurrence of an Event of Bankruptcy, except as may otherwise be agreed with the trustee or receiver appointed to manage the affairs of the Bankrupt Party, the Other Party shall continue to make all payments required of it under this Agreement as if the Event of Bankruptcy had not occurred, and the Bankrupt Party shall not have the right to terminate any license granted herein.  The term “Event of Bankruptcy” means:  (a) filing in any court or agency pursuant to any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization or for an arrangement or for the appointment of a receiver or trustee of the Bankrupt Party or of its assets or (b) being served with an involuntary petition against the Bankrupt Party, filed in any insolvency proceeding, where such petition is not dismissed within sixty (60) days after the filing thereof.

(b)All rights and licenses granted under or pursuant to this Agreement by Licensee and Tetraphase are and shall otherwise be deemed to be, for purposes of Section 365(n) of the

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U.S. Bankruptcy Code or any analogous provisions in any other country or jurisdiction, licenses of right to “intellectual property” as defined under Section 101 of the U.S. Bankruptcy Code.  The Parties agree that the Parties, as licensees of such rights under this Agreement, shall retain and may fully exercise all of their rights and elections under the U.S. Bankruptcy Code or any analogous provisions in any other country or jurisdiction.  The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against either Party under the U.S. Bankruptcy Code or any analogous provisions in any other country or jurisdiction, the Party hereto that is not a Party to such proceeding shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, which, if not already in the non-subject Party’s possession, shall be promptly delivered to it (i) upon any such commencement of a bankruptcy proceeding upon the non-subject Party’s written request therefor, unless the Party subject to such proceeding elects to continue to perform all of its obligations under this Agreement or (ii) if not delivered under clause (i) above, following the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written request therefor by the non-subject Party.  The Parties acknowledge and agree that payments made under Section 8.02 (Development Milestone Payments) or Section 8.03 (Sales Milestone Payments) or pursuant to any Supply Agreements shall not (x) constitute royalties within the meaning of Section 365(n) of the U.S. Bankruptcy Code or any analogous provisions in any other country or jurisdiction or (y) relate to licenses of intellectual property hereunder.

Section 14.06Automatic Termination of In-Licensed Rights.  Upon any termination of the Harvard License in whole or in part, any Patent Rights or other intellectual property rights that, pursuant to such termination, Tetraphase has ceased to Control shall be excluded from the Patent Rights and intellectual property licensed to Licensee pursuant to Section 2.01 (Grant of Rights).  Upon such termination due to any act or failure to act by any Licensee Entity, then Licensee shall use commercially reasonable efforts, only to the extent requested by Tetraphase in writing and only to the extent permitted pursuant to the Harvard Agreement, (A) negotiate a direct license from Harvard pursuant to Section 4.2.2.3 of the Harvard Agreement that permits Licensee to sublicense the rights granted under such direct license to Tetraphase (and, to the extent possible, Licensee shall ensure that such direct license contains terms no less favorable to Licensee than the terms of the Harvard Agreement are to Tetraphase as of the Effective Date) and (B) exclusively sublicense such rights to Tetraphase on terms no less favorable than those in Licensee’s direct license agreement with Harvard.  Upon any other such termination (i.e., other than due to any act or failure to act by any Licensee Entity), then Licensee shall, at its sole discretion, have the right to negotiate a direct license from Harvard to the extent set forth in Section 4.2.2.3 of the Harvard Agreement.

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Section 14.07Effect of Termination.  

(a)In the event of any termination of this Agreement in its entirety, the following shall apply:

(i)All license grants in this agreement from Tetraphase to Licensee shall immediately terminate;

(ii)To the extent permitted under applicable Law, Licensee shall promptly wind down all clinical trials then being conducted with respect to any Licensed Product in the Territory; provided that Licensee shall be permitted to take all reasonable steps necessary to minimize liability and harm to patients in this process;

(iii)Licensee shall cease using the Tetraphase Technology and return all inventory of the Eravacycline Materials to Tetraphase, together with all copies of the Tetraphase Know-How and other Confidential Information of Tetraphase in the possession or control of Licensee or any of its Representatives;

(iv)Licensee shall, at Tetraphase’s written request, to the extent feasible under applicable Law, promptly: (A) assign and transfer to Tetraphase all of the Licensee Entities’ right, title, and interest in and to all Licensee Regulatory Documents (including Regulatory Approvals), clinical trial agreements (to the extent assignable and not cancelled), confidentiality and other agreements, and materials and Know-How relating exclusively to clinical trials of any Licensed Product, in each case solely to the extent related to and necessary or useful for the Research, Development, Manufacture or Commercialization of the Licensed Compound or any Licensed Product, and solely to the extent in Licensee’s possession or control, and Licensee Trademarks (including all goodwill associated therewith and each Internet domain name incorporating any Licensee Trademark or any variation or part of any Licensee Trademark as its URL address or any part of such address) relating to the Research, Development, Manufacture or Commercialization of the Licensed Compound or any Eravacycline Product and (B) disclose to Tetraphase all documents embodying the foregoing that are in any Licensee Entity’s  possession or control or that any Licensee Entity is able to obtain using reasonable efforts;

(v)The costs associated with the activities set forth in subsections (a)(ii), (a)(iii), (a)(iv)(A) and (a)(iv)(B) of this Section 14.07 (Effect of Termination) shall be borne by Licensee; and

(vi)Notwithstanding any expiration or termination of this Agreement, the Safety Data Exchange Agreement (with respect to Licensee’s obligations thereunder) shall continue in accordance with its terms.

(b)In the event of any termination in respect of one or more Jurisdictions (such Jurisdictions (or, in the event that this Agreement is terminated in its entirety, all Jurisdictions), the “Terminated Territory”) (but not in the case of any termination of this Agreement in its entirety), the following shall apply:

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(i)All rights and licenses granted by Tetraphase to Licensee, shall automatically be deemed to be amended to exclude the Terminated Territory;

(ii)To the extent permitted under applicable Law, Licensee shall promptly wind down all clinical trials then being conducted with respect to any Licensed Product in the Terminated Territory; provided that Licensee shall be permitted to take all reasonable steps necessary to minimize liability and harm to patients in this process;

(iii)All Licensee diligence obligations with respect to the Terminated Territory shall terminate;

(iv)Licensee shall, at Tetraphase’s written request, to the extent feasible under applicable Law, promptly: (A) assign and transfer to Tetraphase all of the Licensee Entities’ right, title, and interest in and to all Licensee Regulatory Documents (including Regulatory Approvals), clinical trial agreements (to the extent assignable and not cancelled), confidentiality and other agreements, and materials and Know-How relating exclusively to clinical trials of any Licensed Product in the Terminated Territory, in each case solely to the extent exclusively related to Licensed Product the Terminated Territory, and solely to the extent in Licensee’s possession or control, and Licensee Trademarks in the Terminated Territory (including all goodwill associated therewith and each Internet domain name incorporating any Licensee Trademark or any variation or part of any Licensee Trademark as its URL address or any part of such address) and (B) disclose to Tetraphase all documents embodying the foregoing that are in any Licensee Entity’s  possession or control or that any Licensee Entity is able to obtain using reasonable efforts; and

(v)The costs associated with the activities set forth in subsections (b)(ii), (b)(iv)(A) and (b)(iv)(B) of this Section 14.07 (Effect of Termination) shall be borne by Licensee.  

Section 14.08Survival; Accrued Rights.  The following articles and sections of this Agreement shall survive expiration or early termination for any reason: ARTICLE I (Definitions), Section 2.01(c), Section 2.01(d), Section 2.01(e), Section 2.03 (No Other Rights and Retained Rights), Section 2.04(c)(ii), Section 2.05 (In-License Agreements) (solely to the extent applicable to Licensee’s exercise of any rights, or performance of any obligations, retained by Licensee hereunder following the applicable expiration or termination), Section 2.06 (Exclusivity), Section 6.06(a), ARTICLE VIII (Payments) (solely with respect to any payment obligations incurred prior to expiration or termination), Section 9.01 (Tetraphase Intellectual Property), Section 9.02 (Licensee Intellectual Property), Section 9.03 (Joint Technology), Section 9.04 (Prosecution of Patent Rights) (with respect to Joint Patent Rights), Section 9.05 (Enforcement and Defense) (with respect to Joint Patent Rights), Section 9.06 (Defense of Third Party Infringement and Misappropriation Claims) (with respect to Third Party claims regarding infringement or misappropriation during the Term), Section 11.07 (Disclaimer), Section 11.08 (Limitation of Liability), ARTICLE XII (Confidentiality), ARTICLE XIII (Indemnification), Section 14.06 (Automatic Termination of In-Licensed Rights) (second and third sentences only), Section 14.07 (Effect of Termination), Section 14.08 (Survival; Accrued Rights), ARTICLE XV (Dispute Resolution; Governing Law), and ARTICLE XVI (Miscellaneous).  In any event, expiration or termination of this Agreement shall not relieve either Party of any liability which accrued hereunder prior to the effective date of such

58


 

expiration or termination nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement, nor prejudice either Party’s right to obtain performance of any obligation.

ARTICLE XV.

DISPUTE RESOLUTION; GOVERNING LAW

Section 15.01Arbitration.  Subject to Section 15.01(d) (Intellectual Property Disputes), any disputes, claims or controversies in connection with this Agreement, including any questions regarding its formation, existence, validity, enforceability, performance, interpretation, breach or termination, that are not resolved in accordance with ARTICLE III (Governance) shall be referred to and finally resolved by binding arbitration under the International Chamber of Commerce Rules of Arbitration (the “Rules”), which rules are deemed to be incorporated by reference into this Section 15.01 (Arbitration), in the manner described below:  

(a)Arbitration Request.  If a Party intends to begin an arbitration to resolve a dispute arising under this Agreement, such Party shall provide written notice (the Arbitration Request”) to the other Party of such intention and the issues for resolution.

(b)Additional Issues.  Within [**] days after the receipt of an Arbitration Request, the other Party may, by written notice, add additional issues for resolution.

(c)Arbitration Procedure.  The seat of arbitration will be in Singapore unless other venue is agreed upon by Parties, and it will be conducted in the English language. The arbitrators may not decide based on equity. Unless agreed by the Parties to choose a single common arbitrator, the arbitration will be conducted by three arbitrators, one appointed by each Party, according to the Rules. The two arbitrators appointed by the Parties will by mutual agreement appoint the third arbitrator, who will preside over the arbitration. Any dispute or omission regarding the appointment of the arbitrators by the Parties, as well as the choice of the third arbitrator, will be resolved by the International Chamber of Commerce (“ICC”). The arbitral award shall be final, definitive and binding on the Parties and their successors.  The Parties reserve the right to apply to a competent judicial court to obtain urgent remedies to protect rights before establishment of the arbitration panel, without such recourse being considered as a waiver of arbitration. Except as otherwise determined by the arbitrators, the Parties shall each bear half of the fees and expenses of the arbitrators and the ICC, and each Party shall bear the costs and fees of its attorneys. Nothing in this Agreement shall be deemed as preventing either Party from seeking injunctive relief (or any other provisional remedy) from any court having jurisdiction over the Parties and the subject matter of the dispute as necessary to protect either Party’s name, Confidential Information, Know-How, intellectual property rights or any other proprietary right or otherwise to avoid irreparable harm.  If the issues in dispute involve scientific or technical matters, any arbitrator chosen hereunder shall have educational training or experience sufficient to demonstrate a reasonable level of knowledge in the field of biotechnology and pharmaceuticals.  Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.  

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(d)Intellectual Property Disputes.  Unless otherwise agreed by the Parties, a dispute between the Parties relating to the validity or enforceability of any Patent Right shall not be subject to arbitration and shall be submitted to a court or patent office of competent jurisdiction in the relevant country in which such patent was issued or, if not issued, in which the underlying patent application was filed.  The Parties submit to the jurisdiction of such court or patent office and irrevocably waive any assertion that the case should be heard in a different venue or forum.

Section 15.02Choice of Law.  This Agreement and all amendments, modifications, alterations, or supplements hereto, and the rights of the Parties hereunder, shall be construed under and governed by the Laws of the State of New York, exclusive of its conflicts of laws principles.  

Section 15.03Language.  This Agreement has been prepared in the English language and the English language shall control its interpretation.  All consents, notices, reports and other written documents to be delivered or provided by a Party under this Agreement shall be in the English language, and in the event of any conflict between the provisions of any document and the English language translation thereof, the terms of the English language translation shall control.

ARTICLE XVI.

MISCELLANEOUS

Section 16.01Assignment.  

(a)Tetraphase may assign this Agreement without the prior written consent of Licensee (i) to any Affiliate of Tetraphase, provided that Tetraphase remains fully liable for the performance of Tetraphase’s obligations hereunder by such Affiliate and Tetraphase informs Licensee of such assignment or (ii) to a successor in connection with a merger or consolidation of Tetraphase or the sale of all or substantially all of that portion of Tetraphase’s assets or Tetraphase’s business to which this Agreement relates, in which case Tetraphase will provide prior written notice to Licensee.

(b)Licensee may not assign this Agreement without the prior written consent of Harvard and Tetraphase, except that Licensee may assign this Agreement to an Affiliate of Licensee or to a successor in connection with the merger, consolidation or sale of all or substantially all of Licensee’s assets or that portion of Licensee’s business to which this Agreement relates; provided, however, that any permitted assignee agrees in writing in a manner reasonably satisfactory to Harvard to be bound by the terms of this Agreement.

(c)Any assignment in violation of this Section 16.01 (Assignment) shall be null and void.  This Agreement shall be binding on and shall inure to the benefit of the permitted successors and assigns of the Parties.

Section 16.02Acquisitions.  Each Party agrees that, in the event that a Party (the “Acquired Party”) is acquired (whether by way of merger, acquisition, sale of all or substantially all of its business, or otherwise) or sells all or substantially all of its business or assets to which this Agreement pertains (an “Acquisition”) by or to a Third Party (the

60


 

Acquirer”), the non-Acquired Party shall not obtain any rights or access under this Agreement to any Know-How or Patent Rights owned by or licensed to such Acquirer, or any of such Acquirer’s Affiliates that were not Affiliates of the Acquired Party immediately prior to the consummation of such Acquisition, that were not already within Tetraphase Technology (if the Acquired Party is Tetraphase) or Licensee Technology (if the Acquired Party is Licensee) immediately prior to the consummation of such Acquisition.

Section 16.03Force Majeure.  Subject to the terms of each In-License Agreement, if either Party shall be delayed, interrupted in or prevented from the performance of any obligation hereunder by reason of force majeure, which may include any act of God, fire, flood, earthquake, war (declared or undeclared), public disaster, act of terrorism, government action, strike or labor differences, in each case outside of such Party’s reasonable control, such Party shall not be liable to the other therefor, and the time for performance of such obligation shall be extended for a period equal to the duration of the force majeure which occasioned the delay, interruption or prevention.  The Party invoking the force majeure rights of this Section 16.03 (Force Majeure) must notify the other Party by courier or overnight dispatch (e.g., Federal Express) within a period of thirty (30) days of both the first and last day of the force majeure unless the force majeure renders such notification impossible, in which case notification will be made as soon as possible.  If the delay resulting from the force majeure exceeds one hundred eighty (180) days, the other Party may terminate this Agreement immediately upon written notice to the Party invoking the force majeure rights of this Section 16.03 (Force Majeure).

Section 16.04Entire Agreement.  This Agreement, together with the exhibits and schedules attached hereto, constitutes the entire agreement between Tetraphase or any of its Affiliates, on the one hand, and Licensee or any of its Affiliates, on the other hand, with respect to the subject matter hereof, supersedes all prior understandings and writings between Tetraphase or any of its Affiliates, on the one hand, and Licensee or any of its Affiliates, on the other hand relating to such subject matter, including the Confidentiality Agreement, and shall not be modified, amended or terminated, except by another agreement in writing executed by the Parties.

Section 16.05Severability.  If, under applicable Law, any provision of this Agreement is invalid or unenforceable, or otherwise directly or indirectly affects the validity of any other material provision of this Agreement (such invalid or unenforceable provision, a “Severed Clause”), it is mutually agreed that this Agreement shall endure except for the Severed Clause.  The Parties shall consult one another and use their reasonable 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.

Section 16.06Notices.  Any notice or report required or permitted to be given under this Agreement shall be in writing and shall be mailed by internationally recognized express delivery service, or sent by facsimile and confirmed by mailing, as follows (or to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith):

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If to Tetraphase:

Tetraphase Pharmaceuticals

480 Arsenal Way, Suite 110

Watertown, MA 02472

Attention:  General Counsel

Facsimile:  [**]

 

With a copy to (which shall not constitute notice for purposes of this Agreement):

WilmerHale

60 State Street

Boston, Massachusetts 02109
Attention:  Belinda M. Juran
Facsimile:  (617) 526-5000

 

If to Licensee:

Everest Medicines Limited

Suite 4508, 45F, Tower 2, Plaza 66

1266 Nanjing Xi Lu

Shanghai 200040

China

Attention:  General Counsel

Fax: [**]

 

With a copy to (which shall not constitute notice for purposes of this Agreement):

Covington & Burling

2701 Two ifc, Shanghai ifc

No. 8 Century Avenue

Pudong New District

Shanghai 200120

Attention: Weishi Li

Facsimile: [**]

 

Any such notice shall be deemed to have been given (a) when delivered if personally delivered, (b) on receipt if sent by overnight courier or (c) on receipt if sent by mail.

Section 16.07Agency.  Neither Party is, nor will be deemed to be a partner, employee, agent or representative of the other Party for any purpose.  Each Party is an independent contractor of the other Party.  Neither Party shall have the authority to speak for, represent or obligate the other Party in any way without prior written authority from the other Party.

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Section 16.08No Waiver.  Any omission or delay by either Party at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof, by the other Party, shall not constitute a waiver of such Party’s rights to the future enforcement of any of its rights under this Agreement.  Any waiver by a Party of a particular breach or default by the other Party shall not operate or be construed as a waiver of any subsequent breach or default by the other Party.

Section 16.09Cumulative Remedies.  Except as may be expressly set forth herein, no remedy referred to in this Agreement is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to in this Agreement or otherwise available under law or in equity.

Section 16.10No Third Party Beneficiary Rights.  This Agreement is not intended to and shall not be construed to give any Third Party any interest or rights (including any third party beneficiary rights) with respect to or in connection with any agreement or provision contained herein or contemplated hereby, other than, (a) to the extent provided in Section 13.01 (Indemnification by Tetraphase), the Licensee Indemnitees, (b) to the extent provided in Section 13.02 (Indemnification by Licensee), the Tetraphase Indemnitees and (c) to the extent provided in Section 13.05 (Indemnification of Harvard), and also with respect to Section 13.04 (Insurance), the Harvard Indemnitees.

Section 16.11Use of Harvard Name.  Licensee shall not, and shall ensure that its Affiliates and sublicensees shall not, use the name or insignia of Harvard or the name of any of Harvard’s officers, faculty, other researchers or students, or any adaptation of such names, in any advertising, promotional or sales literature, including any press release or any document employed to obtain funds, without the prior written approval of Harvard.  The restriction set forth in this Section 16.11 (Use of Harvard Name) shall not apply to any information required by Law to be disclosed to any Governmental Authority, including any information required to be disclosed pursuant to rules and regulations promulgated by the United States Securities and Exchange Commission or the rules and regulations of any stock exchange or NASDAQ.

Section 16.12Performance by Affiliates, Sublicensees or Subcontractors.  To the extent that this Agreement imposes any obligation on any Affiliate, permitted sublicensee or permitted subcontractor of Licensee, Licensee shall cause such Affiliate, permitted sublicensee or permitted subcontractor (as applicable) to perform such obligation.  Either Party may use one or more of its Affiliates to perform its obligations and duties hereunder; provided that such Party so notifies the other Party in writing and provided, further, that such Party shall remain liable hereunder for the prompt payment and performance of all of its obligations hereunder.

Section 16.13Counterparts.  This Agreement may be executed in counterparts, all of which taken together shall be regarded as one and the same instrument.

[Signature page follows]

 

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement through their duly authorized representatives to be effective as of the Effective Date.

Tetraphase Pharmaceuticals, INC.

 

By:

/s/   Guy Macdonald

 

 

Name:

Guy Macdonald

 

 

Title:

President and Chief Executive Officer

 

 

 

 

 

 

EVEREST MEDICINES LIMITED

 

 

 

 

 

 

By:

/s/  Sean Wuxiong Cao

 

 

Name:

Sean Wuxiong Cao

 

 

Title:

President

 

 

 

 

 

 


 

Exhibit A

List of Tetraphase Patent Rights Existing as of the Effective Date

Jurisdiction

Patent Application No.

Patent No.

Grant Date

[**]

 

 


 

Exhibit B

Development Plan Framework

[see attached]

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. A total of 7 pages were omitted. [**]

 

 

 

 


 

Exhibit C

Development Plan

 

 

 

 


 

Exhibit D

Personnel Rates

Employee

Hourly Rate

[**]

[**]

[**]

[**]

[**]

[**]

[**]

[**]

[**]

[**]

[**]

[**]

[**]

[**]

[**]

[**]

 

On January 1, 2019 and on January 1 of each subsequent calendar year, the foregoing rates shall be increased for the calendar year then commencing by the percentage increase, if any, in the Consumer Price Index (CPI) as of December 31 of the then most recently completed calendar year with respect to the level of the CPI on December 31, 2017.  As used in this Exhibit D, CPI means the Consumer Price Index – Urban Wage Earners and Clerical Workers, US City Average, All Items, 1982-84 = 100, published by the United States Department of Labor, Bureau of Labor Statistics (or its successor equivalent index).

 


 

 


 

Exhibit E

List of In-License Agreements Existing as of the Effective Date

 

1.

The Harvard Agreement

 

 


 

Schedule 1.45

Eravacycline

 

 

 

 


 

Schedule 1.77

TP-6076

 

 

 

 


 

 

Schedule 2.04

Specified Tetraphase Know-How

[**]

 

 

Exhibit 10.11

This Amendment (“Amendment”) is made and entered into as of July 29, 2019 between Tetraphase Pharmaceuticals, Inc., a corporation organized and existing under the laws of Delaware with a principal place of business at 480 Arsenal Way, Watertown, MA 02472 (“Tetraphase”), and Everest Medicines Limited, an exempted company organized and existing under the laws of Cayman Islands, with a principal place of business at Room 3306-3307, Two Exchange Square, 8 Connaught, Hong Kong (“Licensee”).  Reference is made to that certain License Agreement (“Original License Agreement”) dated February 20, 2018 between Tetraphase and Licensee.  Capitalized terms used herein without definitions shall have the same meanings ascribed to them under the Original License Agreement.

1.

Section 1.41 of the Original License Agreement shall be amended and restated in its entirety as follows:

Jurisdiction” means each of the following: mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, Malaysian Federation, Kingdom of Thailand, the Republic of Indonesia, Socialist Republic of Vietnam or the Republic of the Philippines.

2.

Within thirty (30) days of the execution of this Amendment, Licensee shall pay Tetraphase a one-time, non-refundable, non-creditable upfront payment of Two Million Dollars ($2,000,000).

3.

Section 16.06 of the Original License Agreement shall be amended and restated in its entirety as follows:

Any notice or report required or permitted to be given under this Agreement shall be in writing and shall be mailed by internationally recognized express delivery service, or sent by facsimile and confirmed by mailing, as follows (or to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith):

If to Tetraphase:

Tetraphase Pharmaceuticals

480 Arsenal Way, Suite 110

Watertown, MA 02472

Attention: General Counsel

Facsimile: (617) 926-3557

 

With a copy to (which shall not constitute notice for purposes of this Agreement):

WilmerHale

60 State Street

Page 1 of 4

 


Boston, Massachusetts 02109

Attention: Belinda M. Juran

Facsimile: (617) 526-5000

 

If to Licensee:

Everest Medicines Limited

Room 3306-3307, Two Exchange Square

8 Connaught, Hong Kong

Attention: General Counsel

Fax: 86-21-8012-3394

 

With a copy to (which shall not constitute notice for purposes of this Agreement):

Covington & Burling

2701 Two ifc, Shanghai ifc

No. 8 Century Avenue

Pudong New District

Shanghai 200120

Attention: Weishi Li

Facsimile: 86-216-036-2799

 

Any such notice shall be deemed to have been given (a) when delivered if personally delivered, (b) on receipt if sent by overnight courier or (c) on receipt if sent by mail.

4.

Except as specifically amended by this Amendment, the terms and conditions of Original License Agreement shall remain in full force and effect.

5.

The Parties hereto acknowledge that this Amendment and the Original License Agreement, set forth all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties with respect to the subject matter of this Amendment, and supersede and terminate all prior agreements and understandings between the Parties with respect to the subject matter of this Amendment.  There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties with respect to the subject matter of this Amendment other than as set forth herein and therein.  No subsequent alteration, amendment, change or addition to this Amendment shall be binding upon the Parties unless reduced to writing and signed by the respective authorized officers of the Parties. To the extent of any conflict between any term of this Amendment and any term of the Original License Agreement, the terms of the Original License Agreement shall control except to the extent expressly set forth herein.

6.

The following provisions of the Original License Agreement are herein incorporated by reference and shall apply to the Parties with respect to this Amendment, mutatis mutandis,

Page 2 of 4

 


to the same extent as in the Original License Agreement: Article XII (Confidentiality), Article XV (Dispute Resolution; Governing Law), Sections 1.81 (Interpretation), 8.09 (Methods of Payment), 16.03 (Force Majeure), 16.05 (Severability), 16.07 (Agency), 16.08 (No Waiver), 16.09 (Cumulative Remedies), 16.10 (No Third Party Beneficiaries), and 16.13 (Counterparts).

[Signature Page Follows]


Page 3 of 4

 


IN WITNESS WHEREOF, the Parties have executed this Agreement through their duly authorized representatives to be effective as of the Effective Date.

 

Tetraphase Pharmaceuticals, INC.

By: /s/ Maria Stahl

 

 

 

Name: Maria Stahl

 

 

 

Title: Chief Business Officer and General Counsel

 

 

EVEREST MEDICINES LIMITED

By: /s/Sean Cao

 

 

Name: Sean Cao

 

 

Title: Interim CEO

 

 

Page 4 of 4

 

Exhibit 10.13

 

SUBLEASE

THIS SUBLEASE (this “Sublease”) is made and entered into this 21st day of December, 2020, by and between COTIVITI, INC., a Delaware corporation (“Sublandlord”) and LA JOLLA PHARMACEUTICAL COMPANY, a California corporation (“Subtenant”).

1.Basic Lease Provisions.

 

1.1.

Property/Building Address: 201 Jones Road, Waltham, MA 02451 (the “Property”)

 

1.2.

Subtenant’s Address: 4747 Executive Drive, Suite 240, San Diego, CA 92121

 

1.3.

Sublandlord’s Address: One Glenlake Parkway, Suite 1400, Atlanta, GA 30328

 

1.4.

Prime Landlord: Stony Brook Associates LLC

 

1.5.

Prime Landlord’s Address (for notices): c/o Boston Properties Limited Partnership, Prudential Center, 800 Boylston Street, Suite 1900, Boston, MA 02199

 

1.6.

Identification of Prime Lease and all amendments thereto: Lease dated June 10, 2011, by and between Prime Landlord, as landlord, and Verisk Health Inc., predecessor to Sublandlord, as tenant, as amended by: (i) First Amendment to Lease dated December 26, 2012, by and between Prime Landlord and Verisk Health Inc., predecessor to Sublandlord, and (ii) Second Amendment to Lease dated January 2, 2018, by and between Prime Landlord and Verscend Technologies, Inc., predecessor to Sublandlord (collectively, the “Prime Lease”). A copy of the Prime Lease is attached hereto as Exhibit C.

 

1.7.

Sublease Term: Two (2) years, eleven (11) months, or such shorter period of time between the Commencement Date and Expiration Date, if the Commencement Date is after January 1, 2021

 

1.8.

Commencement Date: Upon the latter of (i) full execution of this Sublease and consent thereto by Prime Landlord, or (ii) January 1, 2021 (the “Commencement Date”)

 

1.9.

Expiration Date: November 30, 2023 (the “Expiration Date”)

 

1.10.

Basic Rent: Twenty-four dollars and fifty cents ($24.50) per rentable square foot (RSF), net of tenant electric. Notwithstanding any other language within the Sublease, the Basic Rent includes Subtenant’s pro rata share of all base year 2021 Real Estate Taxes and Operating Expenses for the Premises. The term “Operating Expenses” shall have the same meaning as “Landlord’s Operating Expenses” under the Prime Lease, and the term “Real Estate Taxes” shall have the same

 


 

 

meaning as is set forth in the Prime Lease. The first rent payment shall be due upon execution of the Sublease and will be applied as the first installment of Basic Rent.

 

Time Period

Rentable
Square Feet

Per
Square
Foot Rate

Monthly
Installment of
Basic Rent

Annualized
Rent

Commencement Date – December 31, 2021

7,388

$24.50

$15,083.83*

$181,006.00

January 1, 2022 – December 31, 2022

7,388

$24.50

$15,083.83

$181,006.00

January 1, 2023-November 30, 2023

7,388

$24.50

$15,083.83

$165,922.17

 

* The Basic Rent for the first month will be prorated if the Commencement Date is not January 1, 2020.

 

1.11.

Electricity: Pro-rata share (29.1%) of the actual electrical charges for the total Sublandlord premises (7,388 RSF subtenant premises / 25,425 RSF total sublandlord premises). Electricity shall be deemed to be “Additional Rent” (further described in Section 8 hereto).

 

1.12.

Description of Premises: Approximately 7,388 rentable square feet located on the fourth (4th) floor of the Building, as depicted on Exhibit A attached hereto (the “Premises”).

 

1.13.

Security Deposit: $15,083.83

 

1.14.

Tenant’s Use: General office use or any use permitted under the Prime Lease.

 

1.15.

Brokers: CBRE Group, Inc. (representing Subtenant) and Cushman & Wakefield U.S., Inc (representing Sublandlord)

 

1.16.

Subtenant E-mail Address: lajollacontracts@ljpc.com; ledwards@ljpc.com; prusu@ljpc.com

 

1.17.

Sublandlord E-mail Address: legal@cotiviti.com (with copy to Mike.Kasmin@cotiviti.com)

2.Prime Lease. Sublandlord is the tenant under the Prime Lease, as amended, with the Prime Landlord identified in Section 1.4, bearing the date specified in Section 1.6. Sublandlord represents and warrants to Subtenant that (a) Sublandlord has delivered to Subtenant a redacted version of the complete Prime Lease and there are no other agreements between Prime Landlord and Sublandlord relating to the leasing, use, and occupancy of the Premises other than the Prime Lease, (b) the Prime Lease is, as of the date hereof, in full force and effect, and (c) no event of default by Sublandlord and/or Prime Landlord has occurred under the Prime Lease and no event has occurred and is continuing which would constitute an event of default by Sublandlord or, to Sublandlord’s knowledge, Prime Landlord but for the requirement of giving notice and/or the expiration of the period of time to cure.

3.Sublease.

3.1.Premises. Sublandlord, for and in consideration of the rents herein reserved and of the covenants and agreements herein contained on the part of the Subtenant to be performed, hereby

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subleases to the Subtenant, and the Subtenant accepts from Sublandlord, the Premises and located in the building (the “Building”), situated on the Property.

4.Term. Subject to Section 5 hereof, the term of this Sublease (hereinafter “Term”) shall commence on the Commencement Date. The Term shall expire on the Expiration Date, unless sooner terminated as otherwise provided elsewhere in this Sublease.

5.Possession, Furniture. Sublandlord agrees to deliver possession of the Premises, together with certain pieces of Sublandlord’s furniture & fixtures identified on Exhibit B attached hereto (the “Existing FF&E”). The parties acknowledge and agree that, as of the date hereof all rights, title and ownership in and to the Existing FF&E shall be conveyed to and vest in Subtenant. Sublandlord makes no representation or warranty as to the condition, fitness or suitability of such Existing FF&E for Subtenant’s purposes. Sublandlord shall have no obligation for the maintenance, repair or replacement of any such Existing FF&E. Subtenant shall be required to remove all Existing FF&E and any additional FF&E installed by Subtenant prior to the Expiration Date, unless Subtenant and Sublandlord reach an agreement to remain in the Premises. Upon execution of this Sublease and Prime Landlord’s consent, Subtenant shall have immediate access to the Premises. The Sublandlord shall deliver the Premises to Subtenant “as is” with reasonable wear and tear expected, and any alterations shall be subject to the provisions of the Prime Lease.

6.Tenant’s Use. The Premises shall be used and occupied only for the Subtenant’s Use set forth in Section 1.14. Tenant shall have access to the Premises twenty-four (24) hours a day, seven (7) days a week. As provided by the Prime Landlord, the current hours of operation are Monday through Friday, 7:00 a.m. to 5:00 p.m. After hours HVAC Rates are $59.00 per hour for cooling and $31.20 per hour for heating. Subtenant shall pay Sublandlord for any after-hours HVAC fees, costs, charges or expenses that Sublandlord incurs as a result of Subtenant’s after- hours use of the Premises.

7.Rent. Beginning on the first (1st) day of the Term (the “Rent Commencement Date”), subject to any rent abatement, Subtenant agrees to pay the Basic Rent set forth in Section 1.10 to Sublandlord at the address specified in Section 1.3, or to such other payee or at such other address as may be designated by notice in writing form from Sublandlord to Subtenant, without prior demand therefor and without any deduction whatsoever except as otherwise set forth in this Sublease. Basic Rent shall be paid in equal monthly installments shown in the Basic Rent chart in Section 1.10 in advance commencing on the Rent Commencement Date, subject to any rent abatement, and thereafter on the first (1st) day of each month of the Term, except that the first installment of Basic Rent shall be paid by Subtenant to Sublandlord upon execution of this Sublease by Subtenant and Sublandlord. Basic Rent shall be pro-rated for partial months at the beginning and end of the Term, if applicable. All charges, costs and sums required to be paid by Subtenant to Sublandlord under this Sublease in addition to Basic Rent shall be deemed “Additional Rent,” and Basic Rent and Additional Rent shall hereinafter collectively be referred to as “Rent.” Subtenant’s covenant to pay Rent shall be independent of every other covenant in this Lease. If any payment or installment of Rent (the “Outstanding Amount”) is not paid when due (the “Due Date”), and such failure continues five (5) business days after receipt of written notice from Sublandlord, Subtenant shall pay a late charge equal to the sum of (a) 5% of the Outstanding Amount for administration and bookkeeping costs associated with the late payment and (b) interest on the Outstanding Amount from the Due Date through and including the date such payment or installment is received by Sublandlord, at a rate equal to the lesser of (i) the rate announced by Bank of America, N.A. (or its successor) from time to time as its prime or base rate (or if such rate is no longer available, a comparable rate reasonably selected by Prime Landlord), plus two percent (2%), or (ii) the maximum applicable legal rate, if any.

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8.Additional Rent.

8.1.Subtenant shall be responsible for its pro-rata share of the total actual electricity charges for the total Sublandlord premises (being 25,425 rentable square feet). Such pro- rata share of electricity charges will be deemed to be “Additional Rent”. Commencing on the Commencement Date and continuing thereafter throughout the Term, Subtenant shall pay Sublandlord its pro-rata share of the total electricity charged to the Sublandlord by the Prime Landlord under the Prime Lease. Subtenant’s pro-rata share of the electricity charges is agreed to be 29.1%, being the quotient of the total rentable square feet of the sublet Premises (7,388 RSF) divided by the total rentable square feet of the Sublandlord premises (25,425 RSF). The method of calculating Sublandlord’s electricity payment is set forth in Section 2.8 of the Prime Lease.

Subtenant shall pay Sublandlord its pro-rata share of the total actual electricity charges for the total Sublandlord premises on a monthly basis, on the first (1st) day of each month of the Term, in accordance with Section 7, above. Such monthly electricity payments shall be the estimated monthly pro-rata share of Sublandlord’s total electricity payment for the total Sublandlord Premises, as reasonably estimated by the Sublandlord. Sublandlord will provide Subtenant with such estimated monthly electricity charges prior to the Commencement Date. No later than one- hundred and twenty (120) day after the end of each calendar year falling within the Term, Sublandlord shall render Subtenant a statement in reasonable detail showing the actual total pro- rated electricity charges for the sublet Premises for the preceding calendar year. Said statement shall also show for such period the amounts already paid by Subtenant on account of the estimated monthly payments and the total amount remaining due from, or overpaid by, Subtenant for the period covered by such statement. If such statement shows a remaining balance due to the Sublandlord, Subtenant shall pay the same to Sublandlord before the thirtieth (30th) day following receipt by Tenant of said statement. For any amounts overpaid by Subtenant, such amounts will be credited against the Annualized Rent (set forth in Section 1.10 hereof) next due, or refunded to Subtenant if the Term has then expired and Subtenant has no further obligation to the Sublandlord.

8.2.Sublandlord shall remain responsible for the payment of any additional rent as outlined in the Prime Lease and notwithstanding anything to the contrary in this Sublease or the Prime Lease, Subtenant shall not be required to make any payment of the additional rent as outlined in the Prime Lease, it being understood that Subtenant’s payment of the Basic Rent includes all taxes, operating expenses, utilities (except electricity), cleaning and other costs for services that may be payable under the Prime Lease for the Premises that are not specifically payable by Subtenant to Sublandlord as provided herein, and, accordingly, shall not be passed through to Subtenant. Real Estate Taxes and Operating Expenses shall be those exclusions applicable to Sublandlord for Payment of Operating Expenses and Real Estate Taxes under the Prime Lease.

8.3.Intentionally Deleted.

9.Subtenant’s Obligations. Subtenant, at Subtenant’s expense, shall be responsible for all maintenance, repairs and replacements to the Premises, to the extent Sublandlord is obligated to perform the same to the Premises under the Prime Lease. Sublandlord represents that the Premises do not share any systems, utilities or other services with any other space in the Building that would require maintenance, repair and or payment for use thereof by Subtenant.

10.Quiet Enjoyment. So long as Subtenant is not in default in the performance of its covenants and agreements in this Sublease, Subtenant’s quiet peaceable enjoyment of the Premises shall not be disturbed or interfered with by Sublandlord, or by any person claiming by, through, or under Sublandlord.

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11.Subtenant’s Insurance. Subtenant shall procure and maintain, at its own cost and expense, such liability insurance as is required to be carried by Sublandlord under the Prime Lease, naming Sublandlord, as well as Prime Landlord, in the manner required therein, and such property insurance as is required to be carried by Sublandlord under the Prime Lease to the extent such property insurance pertains to the Premises; provided, however that notwithstanding anything in the Sublease or the Prime Lease to the contrary, Subtenant’s insurance may be provided through a combination of primary and excess coverage. If the Prime Lease requires Sublandlord to insure leasehold improvements or alterations, then Subtenant shall insure such leasehold improvements which are located in the Premises, as well as alterations in the Premises made by Subtenant. Subtenant shall furnish to Sublandlord a certificate of Subtenant’s insurance required hereunder no later than five (5) days prior to Subtenant’s taking possession of the Premises. Each party hereby waives claims against the other for property damage provided such waiver shall not invalidate the waiving party’s property insurance; each party shall attempt to obtain from its insurance carrier a waiver of its right of subrogation. Subtenant hereby waives claims against Prime Landlord and Sublandlord for property damage to the Premises or its contents if and to the extent that Sublandlord waives such claims against Prime Landlord under the Prime Lease. Subtenant agrees to obtain, for the benefit of Prime Landlord and Sublandlord, such waiver of subrogation rights from its insurer as are required of Sublandlord under the Prime Lease.

12.Assignment or Subletting.

12.1.Subject to the terms of this Sublease and the Prime Lease: (i) Subtenant shall have the right to sublet all or a portion of the Premises without Sublandlord’s approval to any successor of Subtenant resulting from a merger or consolidation of Subtenant or to any other entity under the common control or an affiliate of Subtenant or any successor to Subtenant due to the sale of its business; (ii) Subtenant shall have the right to sublet the Premises or assign the Sublease to a reputable tenant, with Sublandlord’s prior written consent, which shall not be unreasonably withheld, conditioned, or delayed in accordance with Section 5.6 of the Prime Lease. Additionally, Subtenant may share occupancy of the Premises with Subtenant’s contractors, customers, partners or business team for which purposes hereof shall not be considered an assignment or subletting.

12.2.No permitted assignment shall be effective and no permitted sublease shall commence unless and until any default by Subtenant hereunder shall have been cured. No permitted assignment or subletting shall relieve Subtenant from Subtenant’s obligations and agreements hereunder and Subtenant shall continue to be liable as principal and not as guarantor or surety to the same extent as through no assignment or subletting had been made.

13.Rules. Subtenant agrees to comply with all rules and regulations that Prime Landlord has made or may make hereafter from time to time make for the Building. Sublandlord shall not be liable in any way for damage caused by the non-observance by any other tenants of such similar covenants in their leases or of such rules and regulations.

14.Repairs and Compliance. Subtenant shall promptly pay for the repairs set forth in Section 9 hereof and Subtenant shall, at Subtenant’s own expense, comply with all laws and ordinances, and all order, rules and regulations of all governmental authorities and of all insurance bodies and their fire prevention engineers at any time in force, applicable to the Premises or to the Subtenant’s particular use or manner of use thereof, except that Subtenant shall not hereby be under any obligation to comply with any law, ordinance, rule or regulation requiring any structural alteration of or in connection with the Premises, unless such alteration is required by reason of Subtenant’s particular use or manner of use of the Premises, or a condition which has been created by or at the sufferance of Tenant, or is required by reason of a breach of any of Subtenant’s covenants and agreements hereunder. Sublandlord represents and warrants to Subtenant

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that, to Sublandlord’s knowledge the Premises is in compliance with all laws and ordinances in effect as of the date of this Sublease.

15.Fire or Casualty or Eminent Domain. In the event of a fire or other casualty affecting the Building or the Premises, or of a taking of all or a part of the Building or Premises under the power of eminent domain, Sublandlord shall not exercise any right which may have the effect of terminating the Prime Lease without first obtaining the prior written consent of Subtenant which shall not be unreasonably withheld, conditioned or delayed. In the event that Sublandlord has the right to terminate the Prime Lease due to a fire or other casualty affecting the Premises, or of a taking of all or a part of the Building or Premises under the power of eminent domain, Subtenant shall have the same right as Sublandlord under the Prime Lease to terminate this Sublease. Further, in the event Sublandlord is entitled, under the Prime Lease, to a rent abatement as a result of a fire or other casualty or as a result of a taking under the power of eminent domain, then Subtenant shall be entitled to the same rent abatement applicable to the Premises (i.e., if 50% of Sublandlord’s Rent payable to Prime Landlord with respect to the Premises is abated, then 50% of Subtenant’s Rent payable under this Sublease shall be abated; provided, however, if a greater portion of the Premises is taken as compared to the Property, then such percentage shall be increased in proportion to the amount of the Premises taken). If the Prime Lease imposes on Sublandlord the obligation to repair or restore leasehold improvements or alterations, Subtenant shall be responsible for repair or restoration of leasehold improvements or alteration. Subtenant shall make any insurance proceeds resulting from a loss which Sublandlord is obligated to repair or restore available to Sublandlord and shall permit Sublandlord to enter the Premises to perform the same, subject to such conditions as Subtenant may reasonably impose.

16.Alterations; Signage; Parking.

16.1.Subtenant shall not make any alterations in or additions to the Premises (“Alterations”) if to do so would constitute a default under the Prime Lease. If Subtenant’s proposed Alterations would not constitute a default under the Prime Lease, Sublandlord’s consent thereto shall nonetheless be required, but Sublandlord’s consent to such Alteration shall not be unreasonably withheld, conditioned or delayed, it being understood, however, that Sublandlord’s consent shall not be required for any Alterations that do not require Prime Landlord’s consent under the Prime Lease, and if Sublandlord consents thereto, Sublandlord shall use reasonable efforts to obtain the consent of Prime Landlord. Subtenant’s request for Sublandlord’s consent to any proposed Alterations shall include reasonable plans and specifications describing the proposed Alteration to the extent that same are required for consent under the Prime Lease. If Alterations by Subtenant are permitted or consented to as aforesaid, Subtenant shall make such Alterations at its sole cost and expense in accordance with the plans approved by Sublandlord and Prime Landlord (as applicable) and Subtenant shall comply with all of the covenants of Sublandlord contained in the Prime Lease pertaining to the performance of such Alterations.

16.2.Sublandlord shall provide Subtenant with building standard signage in the Building and elevator lobby directories at Sublandlord’s sole cost.

16.3.Subtenant shall have the right to use thirty (30) parking spaces, subject to Section 2.2.1 of the Primary Lease.

17.Surrender. Upon the expiration of this Sublease, or upon the termination of the Sublease or of the Subtenant’s right to possession of the Premises, Subtenant will at once surrender and deliver up the Premises, together with all improvements thereon, to Sublandlord in the condition as existed upon the delivery of the Premises to Subtenant hereunder, reasonable wear and tear excepted; conditions existing because of Subtenant’s failure to perform maintenance, repairs or replacements as required of Subtenant under this Sublease shall not be deemed “reasonable wear and tear.” Such improvements shall include all

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plumbing, lighting, electrical, heating, cooling and ventilating fixtures and equipment and other articles of personal property used in the operation of the Premises (as distinguished from Subtenant’s Personal Property (as defined in Section 18)). Subtenant shall surrender to Sublandlord all keys to the Premises and make known to Sublandlord the combination of all combination locks which Subtenant is permitted to leave on the Premises. All Alterations in or upon the Premises made by Subtenant shall become a part of and shall remain upon the Premises upon such termination without compensation, allowance or credit to Subtenant; provided, however, that Sublandlord shall have the right to require Subtenant to remove any Alterations made by Subtenant, or portion thereof if and only to the extent that such Alterations are required to be removed pursuant to the terms of the Prime Lease or Sublandlord advised Subtenant at the time Sublandlord consented to such Alteration that Subtenant must remove same at the end of the Term. Such right shall be exercisable by Sublandlord’s giving written notice thereof to Subtenant on or before thirty (30) days prior to such expiration or on or before twenty (20) days after such termination. Subtenant shall also remove any Alterations made by Subtenant, or portion thereof, which Prime Landlord may require Sublandlord to remove, pursuant to the terms of the Prime Lease. In any such event, Subtenant shall restore the Premises to their condition prior to the making of such Alteration, repairing any damage occasioned by such removal or restoration. If Sublandlord or Prime Landlord requires removal of any Alteration made by Subtenant, or a portion thereof, and Subtenant does not make such removal in accordance with this Section, Sublandlord may remove the same (and repair any damage occasioned thereby), and dispose thereof, or at its election, deliver same to any other place of business of Subtenant, or warehouse same. Subtenant shall pay the costs of such removal, repair, delivery and warehousing on demand. Notwithstanding anything to the contrary in this Sublease, Subtenant shall not be required to remove any alterations performed by Sublandlord or existing in the Premises prior to the Commencement Date. If, however, the term of the Sublease expires at or about the date of the expiration of the Prime Lease, and if Sublandlord is required under or pursuant to the terms of the Prime Lease to remove any Alterations performed prior to the Commencement Date, Subtenant shall permit Sublandlord to enter Premises for a reasonable period of time prior to the expiration of the Sublease, subject to such conditions as Subtenant may reasonably impose, for the purpose of removing its Alteration and restoring the Premises as required.

18.Removal of Subtenant’s Personal Property. Upon the expiration of this Sublease, Subtenant shall remove Subtenant’s articles of personal property incident to Subtenant’s business (“Personal Property”); provided, however, that Subtenant shall repair any injury or damage to the Premises which may result from such removal, and shall restore the Premises to the same condition as prior to the removal thereof. If Subtenant does not remove Subtenant’s Personal Property from the Premises upon the expiration or earlier termination of the Term, Sublandlord may, at its option, remove same and repair any damage occasioned thereby and restore the Premises as aforesaid and dispose thereof or deliver the same to any other place of business of Subtenant, or warehouse same, and Subtenant shall pay the cost of such removal, repair, restoration, delivery or warehousing to Sublandlord on demand, or Sublandlord may treat said Personal Property as having been conveyed to Sublandlord with this Sublease, without further payment or credit by Sublandlord to Subtenant.

19.Holding Over. Subtenant shall have no right to occupy the Premises or any portion thereof after the expiration of this Sublease or after termination of this Sublease or of Subtenant’s right to possession in consequence of an Event of Default hereunder. In the event Subtenant or any party claiming by, through or under Subtenant holds over, Sublandlord may exercise any and all remedies available to it at labor in equity to recover possession of the Premises, and to recover damages, including without limitation, damages payable by Sublandlord to Prime Landlord by any reason of such holdover. For each and every month or partial month that Subtenant or any party claiming by, through or under Subtenant remains in occupancy of all or any portion of the Premises after the expiration of this Sublease or after termination of this Sublease or Subtenant’s right to possession, Subtenant shall pay, as minimum damages and not as penalty, monthly rental at a rate equal to one hundred fifty percent (150%) the rate of Basic Rent payable by Subtenant hereunder immediately prior to the expiration or other termination of this Sublease

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or of Subtenant’s right to possession. The acceptance by Sublandlord of any lesser sum shall be construed as payment on account and not in satisfaction of damages for such holding over.

20.Encumbering Title. Neither Sublandlord nor Subtenant shall do any act which shall in any way encumber the title of Prime Landlord in and to the Building or the Property, nor shall the interest or estate of Prime Landlord or Sublandlord be in any way subject to any claim by way of lien or encumbrance, whether by operation of law by virtue of any express or implied contract by Subtenant, or by reason of any other act or omission of Subtenant. Any claim to, or lien upon, the Premises, the Building or the Property arising from any act or omission of Subtenant shall accrue only against the subleasehold estate of Subtenant and shall be subject and subordinate to the paramount title and rights of Prime Sublandlord in and to the Building and the Property and the interest of Sublandlord in the premises leased pursuant to the Prime Lease. Without limiting the generality of the foregoing, Subtenant shall not permit the Premises, the Building or the Property to become subject to any mechanics’, laborers’ or materialmen’s lien on account of labor or material furnished to Subtenant or claimed to have been furnished to Subtenant in connection with work of any character performed or claimed to have been performed on the Premises by, or at the direction or sufferance of, Subtenant.

21.Indemnity.  Subtenant agrees to indemnify and defend Sublandlord and hold Sublandlord harmless from all losses, damages, liabilities and expenses (collectively, “Losses”) which Sublandlord may incur, or for which Sublandlord may be liable to Prime Landlord, arising from (i) acts or omissions of Subtenant Parties (as hereinafter defined) to the same extent that Sublandlord would have to indemnify Prime Landlord under the Prime Lease had Sublandlord performed such acts or omissions, or (ii) arising from Subtenant Parties’ (as hereinafter defined) use of the Premises unless such loss, damage, liability, expense arising out of the use of the Premises is due to the gross negligence or willful misconduct of Sublandlord Parties (as hereinafter defined) or a breach of Sublandlord’s obligations or representations under this Sublease (except to the extent such breach is caused or contributed to by Subtenant Parties) or from Losses for which Sublandlord is not responsible for under the Prime Lease. Sublandlord agrees to indemnify and defend Subtenant and hold Subtenant harmless from all losses, damages, liabilities and expenses which Subtenant may incur, or for which Subtenant may be liable to Prime Landlord, arising from (i) acts or omissions of Sublandlord Parties to the same extent that Sublandlord would have to indemnify Prime Landlord under the Prime Lease had Sublandlord performed such acts or omissions, or (ii) a material breach of this Sublease by Sublandlord. As used herein, the term “Subtenant Parties” shall mean the Subtenant, any subsidiary or affiliate of Subtenant, any permitted subtenant, assignee, or any other Subtenant permitted occupant of the Premises, and each of their respective partners, officers, shareholders, directors, members, employees, contractors, agents, licensees, invitees or representatives. As used herein, the term “Sublandlord Parties” shall mean the Sublandlord, any subsidiary or affiliate of Sublandlord, or any other Sublandlord permitted occupant of the Premises, and each of their respective partners, officers, shareholders, directors, members, employees, contractors, agents, licensees, invitees or representatives.

22.Sublandlord’s Reserved Rights. Sublandlord reserves the right, upon reasonable prior written notice at least one (1) day in advance to Subtenant, to inspect the Premises, or to exhibit the Premises to persons having legitimate interest at any time during the Term, but Sublandlord shall minimize interference with Subtenant’s use of the Premises and shall comply with Subtenant’s security requirements.

23.Defaults.

23.1.Subtenant agrees that any one or more of the following events shall be considered an Event of Default as said term is used herein, that is to say, if:

23.1.1.Subtenant (or if Subtenant is a partnership, then any partner of Subtenant) shall institute any proceedings for relief of Subtenant under any bankruptcy or insolvency laws or any laws

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relating to the relief of debtors, or shall file a petition in bankruptcy or take or consent to any other action seeking any such judicial decree or shall make any assignment for the benefit of its creditors or shall admit in writing its inability to pay its debts generally as they become due, or if any court of competent jurisdiction shall enter a decree or order adjudicating it bankrupt or insolvent, or if any trustee or receiver for Subtenant or for any substantial part of its property be appointed, or if any person shall file a petition for involuntary bankruptcy against Subtenant and such appointment or petition shall not be stayed or vacated within sixty (60) days of entry hereof; or officer; or

23.1.2.The Premises are levied on by any revenue officer or similar

23.1.3.Subtenant shall abandon the Premises during the Term hereof. For the purposes of this Sublease, abandonment shall have occurred if (i) Sublandlord reasonably believes that Subtenant has abandoned the premises with no intention of returning, (ii) Sublandlord notifies Subtenant of such belief, and (iii) Subtenant does not respond to Sublandlord’s notification within thirty (30) days confirming that it has not abandoned the Premises; or

23.1.4.Subtenant shall default in any payment of Rent required to be made by Subtenant hereunder when due as herein provided and such default shall continue for five (5) days after notice thereof in writing to Subtenant; or

23.1.5.Subtenant shall default in securing insurance or in providing evidence of insurance as set forth in Section 11 of this Sublease or shall default with respect to lien claims as set forth in Section 20 of this Sublease and either such default shall continue for thirty (30) days after notice thereof in writing to Subtenant; or

23.1.6.Subtenant shall, by its act or omission to act, cause a default under the Prime Lease and such default shall continue for the same period of time for such default to be cured under the Prime Lease after notice thereof in writing to Subtenant; or

23.1.7.Subtenant shall default in any of the other covenants and agreements herein contained to be kept, observed and performed by Subtenant, and such default shall continue for thirty (30) days after notice thereof in writing to Subtenant, provided, however, if such default is not capable of being cured within such thirty (30) day period, then such period shall be extended for an additional fifteen (15) days as long as Subtenant commenced the cure during such thirty (30) day period and thereafter continues to diligently prosecute such cure to completion.

24.Remedies. Upon the occurrence of any one or more Events of Default, Sublandlord may exercise any remedy against Subtenant which Prime Landlord may exercise for default by Sublandlord under the Prime Lease.

25.Waiver of Jury Trial. SUBLANDLORD AND SUBTENANT HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY SUBLANDLORD OR SUBTENANT ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS SUBLEASE, THE RELATIONSHIP OF SUBLANDLORD AND SUBTENANT, SUBTENANT'S USE OR OCCUPANCY OF THE PREMISES AND/OR ANY CLAIM OF INJURY OR DAMAGE. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES OTHER THAN SUBLANDLORD OR SUBTENANT. If the foregoing waiver of jury trial is not permitted by applicable law, then Sublandlord and Subtenant agree that, other than an action by Sublandlord to obtain possession of the Premises or any action which seeks relief which can only be obtained by court proceeding, then any action or proceeding

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by either of them against the other arising out of or in connection with this Sublease, Subtenant's use or occupancy of the Premises, or any claim of injury or damage occurring in or about the Premises shall, upon the motion of either party, be submitted to arbitration.

26.Security Deposit. To secure the faithful performance by Subtenant of all covenants, conditions and agreements in this Sublease set forth and contained on part of Subtenant to be fulfilled, kept, observed and performed including, but not by way of limitation, such covenants and agreements in this Sublease which become applicable upon the termination of the same by re-entry or otherwise, Subtenant has deposited with Sublandlord the Security Deposit as specified in Section 1.13 on the understanding that: (a) the Security Deposit or any portion thereof not previously applied, or from time to time, such one or more portions thereof, may be applied in accordance with applicable law to the curing of any default beyond notice and cure periods that may exist, without prejudice to any other remedy or remedies which Sublandlord may have on account thereof, and upon such application Subtenant shall pay Sublandlord on demand the amount so applied which shall be added to the Security Deposit so the same may be restored to its original amount; (b) should the Sublease be assigned by Sublandlord, the Security Deposit or any portion thereof not previously applied may be turned over to Sublandlord’s assignee and if the same be turned over as aforesaid and upon assumption of the Security Deposit and Sublandlord’s obligations hereunder by such assignee, Subtenant hereby releases Sublandlord from any and all liability with respect to the Security Deposit and/or its application or return; (c) if permitted by law, Sublandlord or its successor shall not be obligated to hold the Security Deposit as a separate fund, but on the contrary may commingle the same with its other funds; (d) if Subtenant shall faithfully fulfill, keep, perform and observe all of the covenants, conditions and agreements in this Sublease set forth and contained on the part of Subtenant to be fulfilled, kept, performed and observed, the sum deposited or the portion thereof not previously applied, shall be returned to Subtenant without interest no later than thirty (30) days after the expiration of the Term of this Sublease or any renewal or extension thereof, provided Subtenant has vacated the Premises and surrender possession thereof to Sublandlord at the expiration of the Term or any extension or renewal thereof as provided herein; (e) in the event that Sublandlord terminates this Sublease or Subtenant’s right to possession by reason of an Event of Default by Subtenant, Sublandlord may apply the Security Deposit against damages suffered to the date of such termination and/or may retain the Security Deposit to apply against such damages as may be suffered or shall accrue thereafter by reason of Subtenant’s default; (f) in the event of bankruptcy, insolvency, reorganization or other creditor-debtor proceedings shall be instituted by or against Subtenant, or its successors or assigns, the Security Deposit shall be deemed to be applied first to the payment of any Rent due Sublandlord for all periods prior to the institution of such proceedings, and the balance, if any, of the Security Deposit may be retained or paid to Sublandlord in partial liquidation of Sublandlord’s damages.

27.Notices and Consents. All notices, demands, requests, consents or approvals which may or are required to be given by either party to the other shall be in writing and shall be deemed given when (i) received or refused if sent by United States registered or certified mail, post prepaid, return receipt requested, or (ii) if sent by overnight commercial courier service (a) if to Subtenant, addressed to Subtenant at the addresses specified in Section 1.2 or at such other place as Subtenant may from time to time designate by notice in writing to Sublandlord or (b) if for Sublandlord, addressed to Sublandlord at the address specified in Section 1.3 or at such other place as Sublandlord may from time to time designate by notice in writing to Subtenant, or (iii) if sent by electronic mail, upon receipt if during normal business hours or, if received after normal business hours, the next business day. Any notice sent by electronic mail shall be sent (a) if to Subtenant, addressed to Subtenant at the e-mail address specified in Section 1.16 or at such other e-mail address Subtenant provides to Sublandlord, and (b) if to Sublandlord, addressed to Sublandlord at the e-mail addresses specified in Section 1.17 or at such other e-mail addresses Sublandlord provides to Subtenant, and shall also be accompanied by notice sent via United States registered or certified mail, or overnight commercial courier. Each party agrees promptly to deliver a copy of each notice, demand, request, consent or approval from such party to Prime Landlord and promptly to deliver to the other party

10


 

a copy of any notice, demand, request, consent or approval received from Prime Landlord. Such copies shall be delivered by overnight commercial courier or electronic mail.

28.Provisions Regarding Sublease. This Sublease and all the rights of parties hereunder are subject and subordinate to the Prime Lease. Each party agrees that it will not, by its act or omission to act, cause a default under the Prime Lease. In furtherance of the foregoing, the parties hereby confirm, each to the other, that it is not practical in this Sublease agreement to enumerate all of the rights and obligations of the various parties under the Prime Lease and specifically to allocate those rights and obligations in this Sublease agreement. Accordingly, in order to afford to Subtenant the benefits of this Sublease and of those provisions of the Prime Lease which by their nature are intended to benefit the party in possession of the Premises, and in order to protect Sublandlord against a default by Subtenant which might cause a default or event by Sublandlord under the Prime Lease:

28.1.Intentionally omitted.

28.2.Except as otherwise expressly provided herein, Sublandlord shall perform its covenants and obligations under the Prime Lease which do not require for their performance and possession of the Premises and which are not otherwise to be performed hereunder by Subtenant on behalf of Sublandlord.

28.3.Except as otherwise expressly provided herein, Subtenant shall perform all affirmative covenants and shall refrain from performing any act which is prohibited by the negative covenants of the Prime Lease, where the obligation to perform or refrain from performing is by its nature imposed upon the party in possession of the Premises. If practicable, Subtenant shall perform affirmative covenants which are also covenants of Sublandlord under the Prime Lease with respect to the Premises at least five (5) days prior to the date when Sublandlord’s performance is required under the Prime Lease. Sublandlord shall have the right to enter the Premises to cure any default by Subtenant under this Section if not cured by Subtenant within thirty (30) days after receipt of written notice from Sublandlord (or within such shorter time period if required by the Prime Lease).

28.4.Sublandlord hereby grants Subtenant the right to receive all of the services and benefits with respect to the Premises which are to be provided by Prime Landlord under the Prime Lease. Sublandlord shall have no duty to perform any obligations of Prime Landlord which are, by their nature, the obligation of an owner or manager of real property. For example, Sublandlord shall not be required to provide the services or repairs which Prime Landlord is required to provide under the Prime Lease. Sublandlord shall have no responsibility for or be liable to Subtenant for any default, failure or delay on the part of Prime Landlord in the performance or observance by Prime Landlord of any of its obligations under the Prime Lease, nor shall such default by Prime Landlord affect this Sublease or waive or defer the performance of any of Subtenant’s obligations hereunder except to the extent that such default by Prime Landlord excuses performance by Sublandlord under the Prime Lease. Notwithstanding the foregoing, the parties contemplate that Prime Landlord shall, in fact, perform its obligations under the Prime Lease and in the event of any default or failure of such performance by Prime Landlord, Sublandlord agrees that it will, upon notice from Subtenant, make demand upon Prime Landlord to perform its obligations under the Prime Lease and, if requested by Subtenant, pursue all remedies at law or in equity to compel Landlord’s performance provided Subtenant pays for any costs incurred therefor.

28.5.Sublandlord agrees to perform, according to the terms of the Prime Lease, the obligations of Sublandlord under the Prime Lease that have not been assumed by Subtenant with respect to the Premises, including without limitation the prompt and timely payment of all Rent and Additional Rent owed under the Prime Lease. Sublandlord further agrees that Sublandlord shall not enter into any agreement with Prime Landlord to modify or terminate the Prime Lease in a manner which would affect the Premises

11


 

or Sublease, or to exercise any right to terminate the Prime Lease in a manner which would affect the Premises or Sublease without obtaining Subtenant's prior written consent in each instance, not to be unreasonably withheld, but only as it pertains to any modification or termination which would affect the Premises or Sublease. Sublandlord agrees to promptly provide Subtenant with copies of all notices received from Prime Landlord with respect to the Premises or Sublease and all notices of default received from Prime Landlord under the Prime Lease.

28.6.Sublandlord agrees to exercise commercially reasonable efforts in good faith to cause Prime Landlord to perform its obligations under the Prime Lease with respect to the Premises including, without limitation, the furnishing of any services or utilities to the Premises and the maintenance, repair or restoration of the Premises and the Building. If Prime Landlord shall default in the performance of any of its covenants or obligations under the Prime Lease which affects the Premises and Sublandlord has not caused Prime Landlord to cure such default within thirty (30) days after written notice from Subtenant, Subtenant shall have the right, at Subtenant's expense, to make any demand or institute any action or proceeding at law or in equity or otherwise against Prime Landlord permitted under the Prime Lease for the enforcement of Prime Landlord's obligations or covenants under the Prime Lease.

29.Additional Services. Sublandlord shall cooperate with Subtenant to cause Prime Landlord to provide services required by Subtenant in addition to those otherwise required to be provided by Prime Landlord under the Prime Lease. Subtenant shall pay Prime Landlord’s charge for such services promptly after having been billed therefor by Prime Landlord or by Sublandlord.

30.Prime Landlord’s Consent.  This Sublease and the obligations of the parties hereunder are expressly conditioned upon Sublandlord’s obtaining prior written consent hereto by Prime Landlord in a form reasonably acceptable to Subtenant, which shall include the terms set forth in the Prime Landlord consent attached hereto as Exhibit D and which Sublandlord, at its sole cost and expense, shall use commercially reasonable efforts to obtain. Subtenant shall promptly deliver to Sublandlord any information reasonably requested by Prime Landlord (in connection with Prime Landlord’s approval of this Sublease) with respect to the nature and operation of Subtenant’s business and/or financial condition of Subtenant. Sublandlord and Subtenant hereby agree, for the benefit of Prime Landlord, that this Sublease and Prime Landlord’s consent hereto shall not (a) create privity of contract between Prime Landlord and Subtenant; (b) be deemed to have amended the Prime Lease in any regard (unless Prime Landlord shall have expressly agreed in writing to such amendment); or (c) construed as a waiver of Prime Landlord’s right under the Prime Lease to consent to any assignment of the Prime Lease by Sublandlord, or as a waiver of Prime Landlord’s right to consent to any assignment by Subtenant of this Sublease or any sub- subletting of the Premises or any part thereof. If Prime Landlord fails to consent to this Sublease within fifteen (15) business days after the date of full execution and delivery of this Sublease, either party shall have the right to terminate this Sublease by giving written notice thereof to the other at any time thereafter, but before Prime Landlord grants such consent. In connection with the consent to this Sublease, Prime Landlord and Sublandlord shall acknowledge and agree in writing that the Prime Lease is valid and binding.

31.Brokerage. Each party warrants to the other that it has had no dealing with any broker or agent in connection with this Sublease other than the Brokers specified in Section 1.15, whose commission shall be paid by Sublandlord, and covenants to pay, hold harmless and indemnify the other party from and against any and all costs (including reasonable attorneys’ fees), expense or liability for any compensation, commissions and charges claimed by any other broker or other agent with respect to this Sublease or the negotiation thereof on behalf of such party.

32.Force Majeure. Sublandlord and Subtenant shall not be deemed in default with respect to any of the terms, covenants and conditions of this Sublease on either party’s part to be performed, if such failure to timely perform same is due in whole or in part to any strike, lockout, labor trouble (whether legal or

12


 

illegal), civil disorder, failure of power, restrictive governmental laws and regulations, riots, insurrections, war, shortages, accidents, casualties, acts of God, or any other cause beyond the reasonable control of such party, it being understood that the failure to pay money shall not be excused by Force Majeure.

33.Miscellaneous.

33.1.Binding Effect. This Sublease shall inure to the benefit of and be a burden upon Sublandlord, Subtenant, and Prime Landlord and their respective transferees, successors and permitted assigns, subject, in the case of Subtenant, to the provisions of Section 12 hereof.

33.2.Governing Law. This Sublease shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts.

33.3.Counterparts.  This Sublease may be executed in one or more counterparts, each of which will constitute an original and all of which together shall comprise the entire Sublease and may be executed by PDF or scanned signatures which shall be treated as original signatures.

33.4.Authority. Each party hereto hereby represents and warrants that this Sublease has been duly authorized, executed and delivered by all necessary action on behalf of such party, constitutes the valid and binding agreement of such party and is enforceable in accordance with its terms.

33.5.Survival. Notwithstanding any provision to the contrary contained in this Sublease, the indemnification obligations of the parties hereunder shall survive the expiration of the Term hereof or any earlier termination of this Sublease.

{signatures appear on following page}

13


 

IN WITNESS WHEREOF, the parties have executed this Sublease as of the day and year first above written.

 

SUBLANDLORD:

Cotiviti, Inc., a Delaware corporation

By:

 

/s/ Peter Csapo

Name:

 

Peter Csapo

Title:

 

CFO, CAO, Treasurer and EVP

Date:

 

12/21/2020

SUBTENANT:

La Jolla Pharmaceutical Company, a California corporation

By:

 

/s/ Larry Edwards

Name:

 

Larry Edwards

Title:

 

CEO

Date:

 

12/21/2020

 

14


 

Exhibit A

Premises

15


 

Exhibit B

Furniture

 

ITEMS

#

Cubicles/Workstations in main area nearest reception

16

Board room table

1

Board room credenza

1

Board room chairs

16

Conference room table

1

Conference room credenza

1

Conference room chairs

9

Conference room LCD

1

Reception desk

1

Reception guest chairs

2

Reception table

1

LCDs (3 offices)

3

Desk chairs

52

Guest chairs

22

Refrigerators

4

Phone Room workstations

2

Tables w/ casters

4

Shelving units

8

Metal storage cabinet (IT Room)

1

2-Post Communication Racks (IT Room)

2

DSX Access Control Hardware System

1

 

16


 

Exhibit C

The Prime Lease

17


 

Exhibit D

Landlord Consent

18

Exhibit 21.1

 

Subsidiaries of La Jolla Pharmaceutical Company

 

 

 

 

 

 

Name of Subsidiary

 

Jurisdiction

La Jolla Pharma, LLC

 

Delaware

Tetraphase Pharmaceuticals, Inc.

 

Delaware

Tetraphase Pharma Securities, Inc.

 

Massachusetts

La Jolla Pharmaceutical Australia Pty Ltd

 

Australia

La Jolla Pharmaceutical I B.V.

 

Netherlands

La Jolla Pharmaceutical II B.V.

 

Netherlands

La Jolla Pharmaceutical III B.V.

 

Netherlands

Tetraphase Ireland Limited

 

Republic of Ireland

Tetraphase UK Limited

 

United Kingdom

 

 

 

Exhibit 23.1

 

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

La Jolla Pharmaceutical Company

San Diego, CA

 

We consent to the incorporation by reference in Registration Statements (No. 333-214721), (No. 333-221198) and (333-227818) on Form S-3 and (No. 333-184909), (No. 333-193016), (No. 333-207212), (No. 333-214722), (No. 333-221197) and (No. 333-227819) on Form S-8 of La Jolla Pharmaceutical Company of our report dated March 8, 2021 relating to the consolidated financial statements of La Jolla Pharmaceutical Company appearing in this Annual Report on Form 10-K of La Jolla Pharmaceutical Company for the year ended December 31, 2020.

 

 

/s/ BAKER TILLY US, LLP

 

March 8, 2021

San Diego, California

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Larry Edwards, certify that:

1.

I have reviewed this Annual Report on Form 10-K of La Jolla Pharmaceutical Company;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: March 8, 2021

 

By:

/s/ Larry Edwards

 

 

 

Larry Edwards

 

 

 

President and Chief Executive Officer

(principal executive officer)

 

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Hearne, certify that:

1.

I have reviewed this Annual Report on Form 10-K of La Jolla Pharmaceutical Company;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: March 8, 2021

 

By:

/s/ Michael Hearne

 

 

 

Michael Hearne

 

 

 

Chief Financial Officer

(principal financial and accounting officer)

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Larry Edwards, hereby certify, for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

the Annual Report of the Registrant on Form 10-K for the year ended December 31, 2020 (Report), which accompanies this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

the information contained in the Report fairly presents, in all material respects, the financial condition of the Registrant at the end of such quarter and the results of operations of the Registrant for such quarter.

 

Date: March 8, 2021

 

By:

/s/ Larry Edwards

 

 

 

Larry Edwards

 

 

 

President and Chief Executive Officer

(principal executive officer)

 

Note: A signed original of this written statement required by Section 906 has been provided to La Jolla Pharmaceutical Company and will be retained by La Jolla Pharmaceutical Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Michael Hearne, hereby certify, for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

the Annual Report of the Registrant on Form 10-K for the year ended December 31, 2020 (Report), which accompanies this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

the information contained in the Report fairly presents, in all material respects, the financial condition of the Registrant at the end of such quarter and the results of operations of the Registrant for such quarter.

 

Date: March 8, 2021

 

By:

/s/ Michael Hearne

 

 

 

Michael Hearne

 

 

 

Chief Financial Officer

(principal financial and accounting officer)

 

Note: A signed original of this written statement required by Section 906 has been provided to La Jolla Pharmaceutical Company and will be retained by La Jolla Pharmaceutical Company and furnished to the Securities and Exchange Commission or its staff upon request.