Research Collaboration & Option Agreement

EXHIBIT 10.1


PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. SUCH PORTIONS ARE DESIGNATED "[***]".


RESEARCH COLLABORATION AND OPTION AGREEMENT
-------------------------------------------


Research Collaboration and Option Agreement (the "Agreement"), dated as of February 26, 1997 (the "Effective Date") between Emisphere Technologies,
-------------- Inc., a Delaware corporation ("Emisphere"), and Eli Lilly and Company, an
--------- Indiana corporation ("Lilly").
-----


WHEREAS, Emisphere is engaged in the research and development of proprietary synthetic chemical compounds that enable the delivery of therapeutic macromolecules and other compounds that are not currently deliverable by oral means or by certain non-oral means (including all related patents, patent applications and Know-How presently owned by Emisphere and all patents, patent applications, and Know-How relating to inventions developed by Emisphere pursuant to the Program [Program and Know-How both defined below], the "Emisphere Technology"); and --------------------


WHEREAS, Lilly produces, or is engaged in research to produce, therapeutic macromolecules and other compounds that are not currently deliverable by oral means or by certain non-oral means; and


WHEREAS, Emisphere and Lilly desire to collaborate in research regarding the applicability of the Emisphere Technology to Lilly's products, and to provide for certain rights and obligations of Emisphere and Lilly in the event such research produces commercially viable applications; and


WHEREAS, Emisphere desires to grant certain options to Lilly to develop and market Lilly's products using the Emisphere Technology; and


WHEREAS, Emisphere desires to grant a right of first refusal to Lilly to use the Emisphere Technology on certain of Lilly's other products.


NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:


ARTICLE I


RESEARCH PROGRAM


1.1 Collaboration. Lilly and Emisphere hereby agree to collaborate
------------- on a research and development program (the "Program") to research the use of the
------- Emisphere Technology for oral delivery (the "Oral Route") of [***]
----------


2


molecule and all active fragments, analogs, [***] -like peptides with primary function similar to the [***] molecule [***] (" [***] ") as [***]
[***]
[***]
[***]
[***] (the "Non-Oral Routes") of proteins, all as more
--------------- specifically set forth in Exhibit A attached hereto. Emisphere will make available to Lilly access to all Emisphere Technology relevant for the Program.


1.2 Program Management. Lilly and Emisphere shall establish a
------------------ steering committee (the "Steering Committee"). The function of the Steering
------------------ Committee shall be to plan, coordinate and manage the Program. The Steering Committee is not intended to replace any internal management procedures of either party or continued and close collaboration by the parties with respect to the Program. Rather, it is intended to be a vehicle to ensure that the Program proceeds in a timely, coordinated, and well-planned fashion. It shall be made up of up to [***] members, with an equal number appointed by each of Lilly and Emisphere and with a central contact person appointed by each party. Each party hereto shall name one member to be a co-chairperson of the Steering Committee. On at least a quarterly basis, the Steering Committee shall meet to review the results of the Program and to approve a work plan, based on the Program as outlined in Exhibit A, for the ensuing quarter. The work plan for the first quarter of the Program is set forth in Exhibit A. The Steering Committee shall keep minutes of its meetings, shall act by a majority vote of its members and shall be responsible for the development and implementation of the work plan. Finally, meetings of the Steering Committee will alternate between Emisphere's designated facility and Lilly's designated facility. Each party will bear all expenses associated with attendance of its own employees at such meetings held at the other party's designated facility. Work on the Steering Committee (including attendance of its meetings) by Emisphere employees shall be included in the Program work compensated by Lilly pursuant to Section 1.4, below.


1.3 Term; Termination; Damages.
--------------------------


(a) The Program shall continue for [***] from the date hereof (the "Term"); provided that the Steering Committee shall have an option
---- -------- (the "Extension Option") to extend the Program for an additional [***] (the
---------------- "Extension Period"). If the Steering Committee decides to terminate the Program ---------------- at the end of the Term, the Program shall be terminated by written notice to Emisphere and Lilly; in all other cases the Extension Option shall be deemed to have been exercised.


(b) Lilly and Emisphere must mutually agree if the Program is to be extended beyond the Extension Period.


3


(c) Either party may terminate this Agreement upon written notice to the other party that such party has breached this Agreement if, within 60 days of receipt of such notice such breach has not been cured.


(d) Lilly hereby acknowledges and agrees that any breach by it of this Agreement would cause irreparable injury to Emisphere, that money damages alone would not provide an adequate remedy to Emisphere, and that, therefore, Emisphere shall have the right to receive all payments from Lilly contemplated hereunder [***] as liquidated damages in the event of termination due to Lilly's breach. [***]
[***]
[***]
[***]
[***]


(e) Termination or expiration of this Agreement shall not affect the rights and obligations of the parties accrued hereunder prior to termination or expiration. To avoid doubt, it is hereby confirmed that termination of this Agreement by Lilly because of a breach by Emisphere shall not affect Lilly's options as set forth in Article II or Lilly's Right of First Refusal as set forth in Article III. To further avoid doubt, if Emisphere terminates this Agreement because of a breach by Lilly, Lilly's rights under Articles II and III shall be terminated. However, termination of this Agreement shall not affect any license entered into pursuant to such options and Right of First Refusal (whether Lilly or Emisphere is the terminating party).


1.4 Payments.
--------


(a) Lilly shall pay to Emisphere $ [***] (the "Minimum Payments") for [***] hours of work (a rate of [***] FTE) per ---------------- quarter to be performed for the Program by Emisphere. The first Minimum Payment shall be paid by wire transfer of immediately available funds within thirty (30) days of the Effective Date of this Agreement, and subsequent Minimum Payments shall be paid by wire transfer of immediately available funds on or before each three-month anniversary of the Effective Date of this Agreement during the Term and, if applicable, the Extension Period.


(b) "FTE" means a full-time equivalent scientific person year, or
--- a total of [***] or [***] person hours per year of scientific and/or technical work, on or directly related to the Program, carried out by an Emisphere employee having at least a Bachelors Degree in science, or experience equivalent thereto. Scientific work on or directly related to the Program to be performed by Emisphere can include, but is not limited to, experimental laboratory work, recording and writing up results, reviewing literature and references, holding scientific


4


discussions, managing and leading scientific staff, and carrying out Program management duties or such other activities as may be appropriate to the conduct of the Program.


(c) Emisphere shall provide Lilly on a semi-annual basis during the Term of the Program a report detailing how Emisphere allocated FTE's to the Program. Such report shall provide Lilly with the names of the Emisphere employees who make up the FTE's and the amount of each employee's time devoted to the Program. Emisphere shall, further, maintain records in reasonable detail and in accordance with generally accepted accounting principles ("GAAP") of all
---- monies paid by Emisphere for research under the Program and shall provide Lilly, within [***] days of the end of each semi-annual period, with a report stating the dollar amount of funds supplied by Lilly that were expended on research activities during the six month period for which the report is made, using Emisphere's standard project accounting procedures, and such supporting details as are reasonably required by Lilly. To the extent [***]
of Program work have not been completed by Emisphere's employees, or have been completed in a negligent manner, Emisphere shall give credit to Lilly at the rate of $ [***] per hour for each hour of shortfall or negligent work. Such credit shall either be reimbursed to Lilly by wire transfer to a bank account designated by Lilly and/or applied to Lilly's next quarterly minimum payment. Such credit shall be made within [***] days after the above semi- annual report is due to Lilly. Lilly shall be entitled to any tax credits due on account of research and development expenses, to the extent permitted by law, for the Program funds paid by Lilly. Also, Lilly may have the costs of research and development programs audited in accordance with Section 5.19.


(d) If Lilly desires to expand research beyond the scope of the Program, if acceptable to Emisphere in its sole discretion, the parties hereto will mutually agree upon the research programs to be added and the number of FTE's necessary to achieve the objectives of the expanded research. The additional cost for each FTE shall be $ [***] (indexed to the
[***] Consumer Price Index as published by the U.S. Dept. of Commerce in
[***] , adjusted annually) to be paid as follows: (i) an initial payment shall be made on the next date a Minimum Payment is due, pro-rated for the period between such day the FTE is added and the next quarterly payment due pursuant to Section 1.4(a), above, and (ii) all subsequent payments shall be made at the same time as the Minimum Payments.


(e) While the right of first refusal set forth in Article III is in effect, Lilly shall have the right to have Emisphere conduct feasibility studies on the Right of First Refusal Compounds and shall reimburse Emisphere for same at Emisphere's cost, insofar as Emisphere has the capacity to perform such studies.


5


1.5 Ownership of Data and Technology.
--------------------------------


(a) "Know-How" means all trade secrets, confidential scientific,
-------- technical and medical information, data and expertise from time to time developed, produced, created or acquired by Lilly or Emisphere, as appropriate, either prior to the Effective Date and pertaining to the Program or during the term and in the course of carrying out the Program, including, but not limited to, unpatented inventions, discoveries, theories, plans, ideas or designs (whether or not reduced to practice). To the extent that any of the items listed above are acquired by either Emisphere or Lilly, they shall only fall within the definition of Know-How hereunder to the extent to which there are no obligations or restrictions in respect of such items which would prohibit disclosure or use by Lilly or Emisphere, as appropriate.


(b) Except as set forth in Sections 1.5(f) and (g) below, Emisphere shall own all patents, patent applications and Know-How relating to the Emisphere Technology that it invents and/or develops and any Lilly Improvements.


(c) It will not be Lilly's responsibility or intent to develop new synthetic chemical compounds that enable the delivery of therapeutic macromolecules and other compounds that are not currently deliverable by oral means or by certain non-oral means (the "Carriers") as part of the Program. Any new Carriers or inventions which are closely related to the Emisphere Technology (as it exists as of the Effective Date) that arise, in whole or in part, out of suggestions, recommendations or discussions held between Emisphere and Lilly scientists shall be Emisphere Technology.


(d) A "Lilly Improvement" shall be an improvement to Emisphere's
----------------- then-existing Emisphere Technology made by a Lilly employee as part of the Program.


(e) If Lilly makes recommendations, suggestions and/or has discussions with Emisphere scientists that lead to a material addition to Emisphere Technology pursuant to Section 1.5(c), above, or Lilly obtains a material Lilly Improvement, Lilly will receive for any given protein (the "Chosen Protein"), provided that the addition to Emisphere Technology and/or -------------- Lilly Improvement at issue is applicable to the Chosen Protein(s), the right to license all Emisphere Technology and the Lilly Improvement for the Chosen Protein(s) at Lilly's discretion in accordance with any one of the following milestone/royalty schedules (the "Chosen Protein Right"):
--------------------


1) [***]
[***]
[***]


6


[***]
[***]
[***]
[***]
[***]
[***]


2) The same terms as the Oral [***] Option set forth in Appendix 3,
hereto. Furthermore, in the event that Lilly, its Affiliates and sub-
licensees together have a greater than [***] % share of the world
market for the Chosen Protein(s), the [***] % royalty rate will
apply to only [***] % of Lilly's, its Affiliates' and its sub-
licensees' cumulated net sales.


3) The same milestones as for the Oral [***] Option (set forth in
Appendix 1), with the following royalty rate schedule: [***] % for
net sales below the royalty step function target, and [***] % for
net sales above the target. The net sales targets for this Section
are:


Year Target Net Sales
---- ----------------
1 $ [***]
2 $ [***]
3 $ [***]
4 and beyond $ [***]


Net Sales Targets will be adjusted annually based on changes in the
Consumer Price Index published by the United States Department of
Commerce, with a baseline of [***] .


4) Any other milestone/royalty schedule negotiated by the parties hereto
in good faith.


The Chosen Protein(s) shall not include [***] or Right of First Refusal Compounds. The Chosen Protein Right shall apply to a maximum of [***] proteins and shall expire [***] years from the Effective Date. Lilly shall not be permitted to choose more than [***] and shall be limited to a maximum of [***] proteins in any single year. Furthermore, Lilly shall not be permitted to exercise this Chosen Protein Right in the first year of this Agreement, even if there are Lilly Improvements.


The parties agree to negotiate in good faith whether or not an addition to Emisphere Technology or a Lilly Improvement is material, taking into account the size of the


7


potential market and the value of the reduced payments to Emisphere. Examples of the areas where such items may be material are:


i) [***]


ii) [***]


iii) [***]


iv) [***]


v) [***]


vi) [***]


vii) [***]


viii) [***]
[***]


(f) Lilly shall own all patents, patent applications and Know-How relating to the therapeutic uses (specifically excluding Carrier delivery systems) of [***] or any of its other proteins, to the extent that Lilly or Emisphere invents same during the course of the Program.


(g) Lilly shall own any toxicology or chemistry, manufacturing and control data that it generates for the Program. If for reasons other than a decision not to commercialize (i.e., for technical or other business reasons, not for competitive reasons) the corresponding Product (as defined in Article II), Lilly does not exercise any of the Options (as also defined in Article II) granted pursuant to Article II, below, then Emisphere shall have the right to purchase from Lilly all data generated by Lilly utilizing Emisphere Technology
[***] as verified by Lilly's standard accounting practices and principles. To the extent Emisphere chooses not to purchase Lilly's data at Lilly's [***] , Lilly agrees to consider negotiating with Emisphere the sale of such data at a lower price. However, nothing set forth herein shall require Lilly to sell Emisphere such data at such lower price. If because of its determination not to commercialize (for competitive, as opposed to technical or other business reasons) a Product Lilly fails to exercise any of the Options granted pursuant to Article II, below, then Emisphere shall have the same right to purchase access to Lilly's data set forth above. However, Emisphere's use of those data under such circumstances shall be limited to its marketing efforts with respect to securing another partner for development of the corresponding Product(s). Emisphere shall own any data that it generates during the Program.


8


(h) With respect to patents, patent applications and Know-How invented and/or developed by Emisphere or Lilly during the course of the Program, and to the extent the ownership of such patents, patent applications and Know-How is not established in Sections 1.5(b), (c), (f) or (g), above, ownership of such patents, patent applications and Know-How shall be as follows:


i) if made solely by an employee of Emisphere, Emisphere shall own such
patents, patent applications and Know-How;


ii) if made solely by an employee of Lilly, Lilly shall own such patents,
patent applications and Know-How;


iii) if made jointly by employees of Lilly and Emisphere, Lilly and
Emisphere shall each own an undivided one-half interest in such
patents, patent applications and Know-How.


1.6 Patent Applications - Emisphere. Emisphere hereby covenants and
------------------------------- agrees to undertake diligent efforts to file patent applications, to the extent it deems advisable, within [***] of the Effective Date for the existing Emisphere Technology in any country listed in Exhibit C attached hereto in which it does not hold a patent, provided the filing of any such patent applications is not barred by local law. In pursuing patent protection for Emisphere Technology made pursuant to the Program, Lilly Improvements and/or any inventions that fall within Section 1.5(h)(i), above, Emisphere will use the same diligence it would apply to the pursuit of such protection for other discoveries of similar importance. Prior to the contemplated filing date, Emisphere shall make a diligent effort to submit to Lilly a substantially completed draft of any patent application Emisphere intends to file under this Agreement. Emisphere will make reasonable efforts to adopt Lilly's promptly made suggestions, when appropriate in Emisphere's opinion, regarding any such draft. Furthermore, Emisphere will confer with Lilly regarding the prosecution of pending patent applications and make reasonable efforts to adopt Lilly's promptly made suggestions, when appropriate in Emisphere's opinion, regarding the prosecution of such patent applications. Emisphere will send copies to Lilly of any official actions and submissions with respect to such patent applications.


[***] preparing, filing, prosecuting and maintaining any patent applications and patents relating to the Emisphere Technology, Lilly Improvements and/or any inventions that fall within Section 1.5(h)(i), above. Should Emisphere not wish to file, prosecute, maintain or issue any patent application, or maintain a patent issuing from any such patent application, in any particular country, Emisphere will so notify Lilly of its intentions. At Emisphere's election, Lilly shall then have the right to file, prosecute, issue and maintain such patent application or maintain such patent in the name of Lilly. Such patent application or patent, further, shall be owned by Lilly and shall not be considered Emisphere Technology or a Lilly


9


Improvement. Under no circumstances, however, shall Emisphere fail to file, prosecute, maintain or issue any patent application, or maintain a patent issuing from such application, in any particular country unless Lilly consents to such failure on the part of Emisphere (such consent not to be unreasonably withheld) or the right to file, prosecute, maintain and/or issue any such patent application or patent has been granted to Lilly.


1.7 Patent Applications - Joint Inventions. With respect to any
-------------------------------------- inventions that fall within Section 1.5(h)(iii), above, Emisphere will prepare and file patent applications on behalf of both parties and will diligently prosecute same. Prior to the contemplated filing, Emisphere shall submit a substantially completed draft of such patent applications to Lilly for approval, which approval shall not be unreasonably withheld or delayed. In the event of an imminent statutory bar to patenting, Emisphere shall have the right to file a patent application, for the invention on which a patent would be barred, without first receiving approval from Lilly, in order to preserve the patent rights to such invention. [***] preparing, filing prosecuting and maintaining any patent applications and patents falling within this Section 1.7. Should Emisphere not wish to file, prosecute, maintain or issue any patent application falling within this Section 1.7, or maintain a patent issuing from any such patent applications, in any particular country, Emisphere, at its election, will grant Lilly any necessary authority to file, prosecute, maintain or issue such patent application, or maintain such a patent, in the name of Lilly. However, in such case, the title and ownership of such patent application or patent for such country shall be assigned to Lilly. Likewise, should Lilly not wish to file, prosecute, maintain or issue any patent application falling with this Section 1.7, or maintain a patent issuing from such patent applications, in any particular country, Lilly, at its election, will grant Emisphere any necessary authority to file, prosecute, issue and maintain such patent application, or maintain such a patent, in the name of Emisphere. However, in such case, the title and ownership of such patent application or patent for such country shall be assigned to Emisphere.


1.8 Patent Applications - Cooperation. Each party shall cooperate
--------------------------------- with the other in completing any patent applications on Emisphere Technology, Lilly Improvements, therapeutic uses of [***] or any of Lilly's other proteins/peptides or inventions falling within Section 1.5(h)(iii) to the extent the non-filing party has information reasonably relevant to the preparation or prosecution of such patent applications. Further, each party shall cooperate in executing and delivering any instrument required to assign, convey or transfer to the other party its interest in Emisphere Technology, Lilly Improvements, therapeutic uses of [***] or any other of Lilly's proteins/peptides or inventions falling within Section 1.5(h)(iii) should such assignment, conveyance or transfer be required by the terms of this Agreement.


10


ARTICLE II


OPTIONS


2.1 The Options. Lilly is hereby granted the following options (the
----------- "Options"): -------


(a) An option (the "Oral [***] Option") to an exclusive
------------------- worldwide (the "Territory") license to make and use the Emisphere Technology to
--------- develop products (the "Oral [***] Products") to deliver [***] by the Oral
--------------------- Route. The terms of the license are set forth in the Form of License Agreement attached hereto as Exhibit B and the license supplement attached hereto as Appendix 1.


(b) An option for each Non-Oral Route (each such option, a "Non-
---- Oral [***] Option") to an exclusive license in the Territory to make and use - ------------------- the Emisphere Technology to develop products (the "Non-Oral [***] Products")
------------------------- to deliver [***] by such Non-Oral Route (the Non-Oral Ro ...