Development Agreement

Exhibit 10.1


COLLABORATIVE DEVELOPMENT AGREEMENT

Between

Health Enhancement Products Inc.

and

HEPI Pharmaceuticals, Inc.


This Collaborative Development Agreement , effective as of the " Effective Date" (defined below), confirms the mutual understanding between Health Enhancement Products Inc., a Nevada corporation (" HEPI" ), and HEPI Pharmaceuticals, Inc., a Delaware corporation (" HEPIPHARM" ), each having a place of business at 7740 E. Evans Road, Suite A101, Scottsdale, AZ 85260. In this Agreement, HEPI and HEPIPHARM may also be referred to individually as " Party" and collectively as " Parties" .


WHEREAS , HEPI possesses compounds that may be suitable for a variety of therapeutic indications (" HEPI Compounds" );


WHEREAS, HEPIPHARM possesses the capacity to test compounds for a variety of different therapeutic applications and develop those compounds for medicinal uses;


WHEREAS, HEPIPHARM is willing to test HEPI Compounds for the evaluation of therapeutic applications using its assays and standard behavioral and non-clinical in vivo tests;


WHEREAS , the Parties wish to collaborate to develop and commercialize the HEPI Compounds under the terms hereinafter set forth;


NOW THEREFORE , in accordance with the foregoing, the Parties intending to be legally bound hereby agree as follows:


1.0

Definitions .


1.1

" Affiliates" shall mean, with respect to either party, any corporation, company, partnership, joint venture or any other entity controlled by, controlling, or under common control with such party and shall include any corporation, company, partnership, joint venture, or other entity at least fifty percent (50%) of whose voting stock or participating profit interest is owned or controlled, directly or indirectly, by such party, and any corporation, company, partnership, joint venture, or other entity which owns or controls, directly or indirectly, at least fifty percent (50%) of the voting stock of such party.


1.2

" Agreement" means this collaboration and license agreement between HEPIPHARM and HEPI.


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1.3

" Analog" shall include without shall include without limitation, any and all HEPI synthesized (by itself or on its behalf) salts, esters, solvates, clathrates, prodrugs, polymorphs, isomers, metabolites, homologs, crystal forms, amorphous forms or co-crystals of any of the foregoing, and other related structures sufficient to serve as potential backup compounds of the nominated Pre-Development Candidate.

1.4

" Combination Product" shall mean any Licensed Product containing one or more Licensed Compound(s) along with one or more additional active ingredients.

1.5

" Derivative" shall have the meaning ascribed to it in Section 2.6.1.

1.6

" DMF" shall mean the drug manufacturing files as that term is used by the FDA.

1.7

" Effective Date" shall mean the later of (i) the last date of the signatures below or (ii) the effective date of approval under an applicable Hart Scott Rodino filing, if required.

1.8

" First Commercial Sale" shall mean, with respect to any Product, the first sale by a Party hereto, or any of its Affiliates or Sublicensees, to a Third Party for end use or consumption of such Product in a country after the governing health regulatory authority of such country has granted Regulatory Approval. Sale to an Affiliate or Sublicensee shall not constitute a First Commercial Sale.

1.9

" FDA" shall mean the US Food and Drug Administration or any successor entity thereto having the administrative authority to regulate the marketing of human pharmaceutical products or biological therapeutic products, delivery systems and devices in the United States of America, and any applicable foreign equivalent entity within the Territory.

1.10

" Generic Competition" shall mean when any entity, other than HEPIPHARM or its licensees commences marketing/selling the same or equivalent active pharmaceutical ingredient(s) as contained in the Licensed Product(s) in any country where HEPIPHARM or Sublicensees are marketing the Licensed Product(s).

1.11

" IND" shall mean an Investigational New Drug Application filed with the FDA, or equivalent application or filing filed with any equivalent agency or governmental authority outside the United State of America (including any supra-national agency such as in the European Union) necessary to commence human clinical trials in such jurisdiction.

1.12

" Indemnitees" shall mean a respective Party' s directors, officers, employees and agents.

1.13

" Inventions" shall mean any inventions or discoveries, whether or not patentable, made by employees and/or agents of HEPIPHARM or Affiliates of HEPIPHARM (either solely or jointly with employees and/or agents of HEPI or Third Parties) that pertain to Licensed Compounds.

1.14

" Joint Research Committee" or " JRC" shall mean the committee described in Section 2.2 charged with overseeing, monitoring and making decisions relating to the scientific aspects of the research and development program and the Licensed Compounds being investigated.


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1.15

" Know-How" shall mean information, data including without limitation preclinical and clinical data and results, manufacturing techniques, formulations, processes and unpatented inventions pertaining to Licensed Compounds.

1.16

" HEPI Compounds" shall mean any compounds that are derived in whole or part from HEPI' s ProAlgaZyme product or process including all stereoisomers, polymorphs, prodrugs, Analogs, active metabolites and salts of any of the foregoing along with any and all related compounds and Analogs disclosed and claimed in HEPI Patents.

1.17

" Licensed Compound" shall mean the compounds that are derived in whole or part from HEPI Compounds including all stereoisomers, polymorphs, prodrugs, Analogs, active metabolites and salts of any of the foregoing along with any and all related compounds and Analogs disclosed and claimed in HEPI Patents.

1.18

" Licensed Patents" shall mean HEPI Licensed Patents and HEPIPHARM Licensed Patents.

1.19

" Licensed Product(s)" shall mean any product or formulation of Licensed Compound or Combination Product covered by at least one Valid Claim of a Licensed Patent.

1.20

" Licensed Technology" shall mean Licensed Patents and Know-How.

1.21

" Major Country" shall mean the United States, Canada, the United Kingdom, Germany, France, Sweden, Denmark, Netherlands and Italy.

1.22

" NDA" or " BLA" means an application (whether original, supplementary or abbreviated) to the FDA, or an equivalent application in other countries of the Territory, for approval by the FDA or the equivalent governmental agencies in other countries of the Territory, respectively, necessary for the commercial sale of a product in such country. An NDA, together with all supplemental filings referencing the initial NDA filing shall be deemed one and the same NDA for purposes of this Agreement.

1.23

" Net Sales" shall mean the total amount received by Party, its Affiliates and Sublicensees on account of sales of Licensed Product to Third Parties in the Territory, less the following deductions to the extent actually allowed or specifically allocated to the Licensed Product by the selling party using generally accepted International Accounting Standards (" IAS" ):

(i)

value added taxes, sales and excise taxes and duties paid or allowed by the selling party, charge-backs and any other governmental charges imposed upon the production, importation, use or sale of such Licensed Product;

(ii)

trade, quantity and cash discounts allowed on Licensed Product including charge back payments, administrative fees, and rebates granted to managed care organizations, purchasers and reimbursers or to trade customers, including but not limited, wholesalers and chain and pharmacy buying groups;

(iii)

allowances or credits allowed on account of damaged goods, rejection, returned goods, retroactive price reductions, withdrawal, recall or relabeling of Licensed Product; and


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(iv)

freight, postage, handling, shipping, customs duties and insurance costs, if they are included in the selling price for the Licensed Product invoiced to Third Parties or otherwise paid by Third Parties.

1.24

For the avoidance of doubt, for each of the Licensed Products the Net Sales shall be calculated only once for the first sale of such Licensed Product by either the selling Party or its Affiliates, sublicensees or distributors, as the case may be, to a Third Party. A sale of Licensed Product to a wholesaler shall be regarded as the first sale of the Licensed Product for the purpose of calculating Net Sales.

1.25

In the event that Licensed Product is sold as a Combination Product, Net Sales will be calculated by multiplying actual Net Sales (determined above) by the fraction A/(A+B) where: i) A is the invoice price of Licensed Compound if sold separately by the selling Party, its Affiliates or Sublicensee(s), during the applicable Calendar Quarter, and ii) B is the invoice price of any other active pharmaceutical component(s) in the Combination Product sold separately by the selling Party, its Affiliates or Sublicensee(s). If the invoice price B is unavailable, then the Combination Product Net Sales shall be substituted for the sum of (A+B). If the Licensed Compound is not sold separately (i.e. there is no price for A), then Net Sales of the Combination Product shall be multiplied by 1-(E/F) where E is the invoice price of the other active pharmaceutical component contained in the Combinatio n Product and F is the invoice price of the Combination Product and if none of the individual components are sold separately, then the Net Sales of the Combination Product shall be multiplied by the fraction one-half (1/2).

1.26

" HEPIPHARM Assays" shall mean HEPIPHARM confidential and proprietary analytical methods and in vivo testing capabilities capacity for testing compounds for a variety of different therapeutic applications.

1.27

" HEPIPHARM Assay Inventions" shall have the meaning ascribed to it in Section 3.2.

1.28

" Phase I Clinical Trial" shall mean a human clinical study conducted in accordance with good clinical practice in a small number of healthy volunteers or patients designed or intended to establish an initial safety profile, pharmacodynamics, or pharmacokinetics of a Licensed Product.

1.29

" Phase II Clinical Trial" shall mean a human clinical trial that satisfied the requirements for a Phase II study as defined in 21 C.F.R. 312.21(b) (or its successor regulation).

1.30

" Phase III Clinical Trial" shall mean a human clinical trial that satisfied the requirements for a Phase III study as defined in 21 C.F.R. 312.21(c) (or its successor regulation).

1.31

" Pre-Development Candidate" shall have the meaning ascribed to it in Section 2.6.

1.32

" HEPIPHARM" shall mean HEPIPHARM Inc. and its Affiliates.


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1.33

" HEPIPHARM Know-How" shall mean proprietary information, data, and the like including all preclinical and clinical data, all formulation information, and manufacturing records pertaining to Licensed Compounds/Licensed Product(s) and owned or controlled by HEPIPHARM.

1.34

" HEPIPHARM Patents" shall mean HEPIPHARM owned or controlled patents and patent applications (a) containing at least one claim covering the structure, use, formulation and/or manufacture of Licensed Product(s) and any other Licensed Product(s); (b) containing one or more claims covering processes and intermediates useful in the manufacture of Licensed Compound(s) and any other Licensed Product(s); and (c) further including those patents and patent applications listed in Exhibit E2 as updated from time to time.

1.35

" HEPIPHARM Technology" shall mean HEPIPHARM Patents and HEPIPHARM Know-How.

1.36

" Regulatory Approvals" shall mean and include licenses, permits, authorizations and approvals of, and registrations, filings and other notifications to, any governmental agency or department within the Territory, including, without limitation, the United States Food and Drug Administration and the EMEA/European Commission, as applicable, and including any requisite pricing and reimbursement approval, necessary or appropriate for the manufacture, production, storage, distribution, import, transport, marketing, sale and/ or use of Licensed Product within the Territory.

1.37

" HEPI" shall mean HEPI Inc. and its Affiliates.

1.38

" HEPI Know-How" shall mean proprietary information, data, and the like including all preclinical and clinical data, all formulation information, and manufacturing records pertaining to Licensed Compounds/Licensed Product(s) and owned or controlled by HEPI.

1.39

" HEPI Patents" shall mean HEPI owned or controlled patents and patent applications (a) containing at least one claim covering the structure, use, formulation and/or manufacture of Licensed Product(s) and any other Licensed Product(s); (b) containing one or more claims covering processes and intermediates useful in the manufacture of Licensed Compound(s) and any other Licensed Product(s); and (c) further including those patents and patent applications listed in Exhibit E1 as updated from time to time.

1.40

" HEPI Technology" shall mean HEPI Patents and HEPI Know-How.

1.41

" Sublicensee" shall mean a Third Party to whom a Party hereunder, or any of its Affiliates, has granted a license or sublicense to develop, make, have made, use, distribute for sale, promote, market, offer for sale, sell, have sold, import, or export Licensed Products, beyond the mere right to purchase Licensed Products from such Party or its Affiliates. The Parties agree that a Third Party acquiring all or substantially all of the business of a Party or its Affiliates, whether by merger, sale of stock, sale of assets, or otherwise, shall not be a Sublicensee.


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1.42

" Royalty Term" is shall mean, on a country-by-country basis, that period beginning with the First Commercial Sale in the applicable country and ending with the last to expire Licensed Patent issued in such country containing a Valid Claim covering the composition, manufacture and/or use of Licensed Product or an intermediate thereof.

1.43

" Territory" shall mean worldwide.

1.44

" Third Party" shall mean any other party that is independent from HEPIPHARM and its Affiliates or HEPI or its Affiliates.

1.45

" Valid Claim" shall mean an issued claim that has been maintained and is enforceable and not been invalidated, withdrawn, dedicated or ruled unenforceable by a court of last resort or pursuant to a ruling for which an appeal can still be timely made.


2.0

Development Collaboration .

2.1

Timeline. The Parties shall begin a five year research collaboration, renewable by mutual consent for an additional five year term, to perform the collaborative research. The research collaboration shall be governed by a Joint Research Committee as set forth in Section 2.2.

2.2

Joint Research Committee. Promptly after the Effective Date, the Parties shall form a Joint Research Committee to oversee and govern the collaboration. Each party shall be represented in the JRC by three (3) delegates. One of the three members from each Party shall be identified such Party as its Head Delegate. The JRC shall meet not less frequently than quarterly. Within ninety (90) days after the Effective Date of this Agreement, the JRC shall develop a research plan based on Appendixes A and B .

2.2.1

All decisions of the JRC shall require the agreement of both Head Delegates. In the event that the JRC cannot reach agreement on an issue, HEPI' s CSO and HEPIPHARM' s VP, Drug Discovery will work in good faith to reach agreement within twenty (20) days. If at the end of such twenty day period the Parties have not reached agreement, HEPI' s CEO and HEPIPHARM' s EVP, Research and Development will work in good faith to reach agreement within an additional fifteen (15) days. If the Parties fail to reach a good faith agreement at the end of such fifteen day period, HEPIPHARM shall have the tie-breaking vote.

2.2.2

HEPI Compounds that are not nominated to the Lead Optimization Phase (Section 2.6) by the JRC shall be returned to HEPI, with no further licensing rights or obligations (except as set forth in Section 3.1) to the other Party.

2.3

Delivery of Material. HEPI shall deliver to HEPIPHARM adequate quantities of HEPI Compounds and Derivatives, identified via code number only, for testing in HEPIPHARM Assays. HEPI Compounds and Derivatives shall be: chemically diverse; computationally predicted to be drug-like; and of greater than 85% purity.


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2.3.1

HEPI shall provide, if available, information on doses, routes of administration and compound solubility for those formulations that have previously been tested in vivo.

2.3.2

HEPIPHARM in consultation with HEPI shall determine the appropriate dose, pre-treat time, routes of administration, and compound solubility for those formulations that have not previously been tested in vivo.

2.4

Screening Phase.

2.4.1

HEPIPHARM Assay Screening : HEPIPHARM shall undertake HEPIPHARM Assays and such other standard behavioral and non-clinical in vivo tests as it deems useful on HEPI Compounds and shall promptly after completing such tests provide to HEPI a written statement identifying possible therapeutic applications with therapeutic class probability estimates on each such HEPI Compound. It is understood that HEPIPHARM will not provide descriptive information concerning HEPIPHARM Assays beyond such identification of possible applications and estimates. Based on such estimates, the Joint Research Committee identified in Section 2.2, may identify up to 5% of such HEPI Compounds as worthy of further testing by HEPI via standard behavioral and other non-clinical in vivo tests. HEPI Compounds so identified shall herein be called " Hits" .

2.4.2

Standard Non-Clinical Testing : HEPIPHARM shall perform two (2) to three (3) standard behavioral and other non-clinical in vivo tests routinely performed at HEPIPHARM on each Hit. Upon completion of the foregoing tests, HEPIPHARM will provide HEPI with methodology, statistically analyzed results, and raw data from such tests.

2.4.2.1

If a Hit shows positive results in at least one standard behavioral test, then the JRC may elect to nominate that Hit as a " Positive Hit" , and the Parties shall proceed to the Pre-Optimization Phase with that Positive Hit.

2.4.3

HEPIPHARM Compounds : If a HEPIPHARM Compound shows positive results in at least one standard behavioral test, and HEPIPHARM elects to include the compound in this collaboration, then the JRC may elect to nominate that HEPI Compound as a " Positive Hit" , and the Parties shall proceed to the Pre-Optimization Phase with that Positive Hit.

2.5

Pre-Optimization Phase :

2.5.1

Patent Search : HEPI shall conduct a patent search for each Positive Hit, and advise HEPIPHARM' s patent counsel of the results of the same. On a compound-by-compound basis, if the patent search results for a Positive Hit are acceptable to the JRC, it shall be deemed a " Confirmed Hit" and the Parties shall proceed with the Pre-Optimization Phase scientific testing set forth in Section 2.5.2.2 . below.

2.5.2

Testing: During the Pre-Optimization Phase, for each Positive Hit:

2.5.2.1

HEPIPHARM shall test the Positive Hit' s target binding profile and determine preliminary pharmacokinetics,


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2.5.2.2

HEPIPHARM shall perform in vivo superiority testing to determine whether the Positive Hit has an improved efficacy and/or safety profile compared to existing drugs having such therapeutic application(s) (collectively, the " Pre-Optimization Results" ).

2.5.2.3

Based on the Pre-Optimization Results, the JRC may elect to nominate a Positive Hit as a " Lead" . The Parties shall take each such Lead into a Lead Optimization Phase.

2.6

Lead Optimization Phase : The first step of a Lead Optimization Phase shall be an agreement by the JRC on the criteria by which a compound shall be judged in determining it to be a successful product of a Lead Optimization Phase (and thus a " Pre- Development Candidate" ). Criteria that shall be considered include target binding profiles, potency, and confirmed efficacy and superiority. At a minimum, the criteria outlined in Appendix C : Pre-requisites for Nomination of Research Compounds for Pre Development Candidacy will apply, along with other criteria selected by the parties. During the Lead Optimization Phase, for each Lead:

2.6.1

HEPIPHARM shall design, and conduct or have conducted, at HEPIPHARM' s expense, synthesis and in vitro testing of derivatives, metabolites, homologs, and isomers, and other structures of a Lead sufficient to serve as potential backup compounds for that Lead (" Derivatives" ).

2.6.2

HEPIPHARM shall perform HEPIPHARM Assays or an applicable standard automated behavioral test routinely provided by HEPIPHARM on not more than 600 Derivatives for one (1) Lead, not more than 700 Derivatives in the aggregate for two (2) Leads, not more than 800 Derivatives in the aggregate for three (3) Leads, not more than 900 Derivatives in the aggregate for four (4) Leads, and not more than 1000 Derivatives in the aggregate for five (5) Leads, unless otherwise determined by the JRC provided however that if the JRC determines more than one behavioral test is to be run per Lead program then HEPIPHARM shall not be obligated to run any such additional test(s) unless it agrees with such determination. HEPIPHARM shall promptly after completing such tests provide to HEPI a written statement identifying possible therapeutic applications with therapeutic class probability estimates on each such Deriva tive and the results of a similarity analysis versus the Derivative' s corresponding to a Lead.

2.6.3

HEPIPHARM shall also design, conduct and pay for in vivo behavioral testing, designed to determine whether a Derivative meets the JRC' s Pre-Development Candidate criteria as outlined in Appendix C on up to five (5) Derivatives per Lead unless otherwise determined by the JRC and agreed to by HEPI.


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2.7

HEPIPHARM will screen HEPI Compounds using HEPIPHARM Assays, determine the probability threshold of each such HEPI Compound having a particular therapeutic application(s) or belonging to a therapeutic class, undertake standard behavioral and non-clinical in vivo tests on certain of such HEPI Compounds as have been mutually chosen by the Parties to be so tested, and, to the extent that such tests so dictate, thereafter proceed to Pre-Optimization and Lead Optimization tasks as herein described and further outlined in Appendix B.

2.8

It is understood that HEPIPHARM will not provide descriptive information beyond identification of possible applications and probability estimates from HEPIPHARM Assays in connection with the collaboration and the Additional Testing in section 6 or for any other purpose. Based on such estimates, the Parties will determine the standard behavioral and other preclinical in vivo tests to use to confirm the results from HEPIPHARM Assays. HEPIPHARM will provide HEPI with methodology and statistically analyzed results from such standard behavioral and non-clinical in vivo tests.

3.0

Intellectual Property.

3.1

Except as otherwise provided in Section 3.2. below, any and all discoveries and inventions, whether or not patentable, conceived during and in the course of the collaboration (" Program Intellectual Property" ) shall be solely owned by HEIPI.

3.2

HEPIPHARM Assay Inventions. Notwithstanding anything to the contrary and for the avoidance of doubt, all inventions and know-how specifically related to HEPIPHARM Assays that do not rely on HEPI Compounds or Derivatives (" HEPIPHARM Assay Inventions" ), shall be excluded from Program Intellectual Property and shall remain the exclusive property of HEPIPHARM, provided , however , that information arising from the Collaboration shall be and remain subject to confidentiality obligations.

3.3

Restricted Disclosure. HEPI will not disclose to HEPIPHARM the identity of HEPI Compounds or any Derivatives except when and to the extent such disclosure is necessary to effect the Collaboration, any provision of the agreement relating thereto, or to comply with legal requirements. HEPI shall maintain in the files of its outside counsel, a list including structural information of all HEPI Compounds in order to confirm the identity of such during the term of the agreement and for a period ending five (5) years thereafter.

3.4

Licensing of Program Intellectual Property . Program Intellectual Property shall be subject to licensing by one Party to the other or by both Parties to third parties (along with respective necessary background intellectual property rights to enable such party to make, use and sell the applicable HEPI Compounds) in accordance with the respective Development Scenario followed, as described in Section 8 below. The Party licensing Program Intellectual Property from the other Party relating to a Licensed Series (as defined in Section 8 below) shall assume all future costs associated with preparation, prosecution, maintenance, defense and enforcement of such Program Intellectual Property that are incurred after the effective date of the applicable License Agreement.


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4.0

Development Scenarios.

4.1

HEPIPHARM Development Scenario :

4.1.1

Upon successful nomination of a Pre-Development Candidate as described in Section 4c above, HEPIPHARM shall purchase from HEPI an exclusive option exercisable for ninety (90) days at HEPIPHARM' s discretion to take an exclusive license under any and all intellectual property owned or controlled solely or jointly by HEPI to make, have made, develop, use, sell, or have sold the Pre-Development Candidate and all Analogs thereof, wherein the term " Analog" shall include without limitation, any and all HEPIPHARM synthesized (by itself or on its behalf) salts, esters, solvates, clathrates, prodrugs, polymorphs, isomers, metabolites, homologs, and other related structures sufficient to serve as potential backup compounds of the nominated Pre-Development Candidate. Collectively, a Pre-Development Candidate and its Analogs shall be a " Licensed Series" ;

4.1.2

As payment for the foregoing exclusive option on the first Licensed Series, HEPIPHARM shall make a one-time payment of $1.0 million to HEPI within forty-five (45) calendar days of the effective date of the option. The exclusive option fee for each subsequent Licensed Series will be subject to an option fee of $0.5 million.

4.1.3

HEPIPHARM shall make the following milestone and royalty payments to HEPI for each Licensed Series for which HEPIPHARM exercises its exclusive option;

Upon HEPIPHARM' s exercise of the exclusive option for a Licensed Series

$0.5 million ($0 if it is the first Licensed Series and the $ 1.0 million option payment was made)

Filing of IND or equivalent

$1.5 million

Initiation of Phase II trial

$2.0 million

Initiation of Phase III trial

$4.0 million

Launch of a Licensed Series product

$8.0 million

Royalty on annual net sales

10%. minimum, subject to terms in Section 6.6

A one-time milestone payment the first time annual net sales of the Licensed Series product exceeds $200 million

$2.0 million


*Milestones are to be paid only one time for each Licensed Series, irrespective of the existence of back-up compounds or the potential for additional indications. Running royalties shall be paid on each compound/product that is ...